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THE  UNIVERSITY 

OF  ILLINOIS 

LIBRARY 


UNMRG 


jj^jMJI) 


Return  this  book  on  or  before  the 
Latest  Date  stamped  below. 

Theft,   mutilation,   and   underlining   of  books 
are  reasons  for  disciplinary  action  and  may 
result  in  dismissal  from  the  University. 
University  of  Illinois  Library 


IV   — 


L161—  O-1096 


APPLETON'S    RAILWAY   SERIES 

EDITED    BY 

EMORY  R.  JOHNSON,  Ph.D.,   Sc.D. 


PRINCIPLES  OF 
RAILROAD  TRANSPORTATION 


PRINCIPLES  OF 
RAILROAD  TRANSPORTATION 


-^ 


r 


BY 


EMORY  R.  JOHNSON,  Ph.D.,  Sc.D. 

DEAN     OF    THE    WHARTON     SCHOOL    OF    FINANCE    AND    COMMERCE    AND    PROFESSOR    OF 

TRANSPORTATION    AND    COMMENCE    IN    THE    UNIVERSITY    OF    PENNSYLVANIA. 

AUTHOR    OF    "OCEAN     AND    INLAND    WATER    TRANSPORTATION/' 

"ELEMENTS     OF     TRANSPORTATION,"     ETC. 


AND 


X 


THURMAN  W.  VAN  METRE,  A.M.,  Ph.D. 

ASSOCIATE    PROFESSOR   OF   TRANSPORTATION    IN    THE    SCHOOL    OF    BUSINESS 

OF    COLUMBIA    UNIVERSITY.        AUTHOR    OF    "ECONOMIC    HISTORY 

OF    THE    UNITED    STATES" 


ILLUSTRATED  WITH  HALF-TONES,  MAPS 
AND  DIAGRAMS 


D.   APPLETON  AND   COMPANY 

NEW  YORK^  LONDON 

1923 


Copyright,  1903,  1904,  1908,  1916,  1921, 
By  D.  APPLETON  AND  COMPANY 


Printed  in  the  United  States  of  America 


3^S 

A  &  O  »P 

\<\s.\ 

ctn,  &     CONTENTS 

CHAPTER  PAGE 

I. — Introduction — Definition   and  Scope  of  Transpor- 
tation         1-9 

Transportation  defined,  2.  The  technics  of  transporta- 
tion, 2.  The  service,  2.  The  economics  of  transportation, 
3.  Transportation  economics  and  the  science  of  political 
economy,  3.  Transportation  and  the  production  of 
wealth,  4.  Transportation  and  the  use  or  consumption 
of  wealth,  4.  Relation  of  transportation  to  the  ex- 
change of  wealth  or  commerce,  4.  Relation  of  trans- 
portation to  the  distribution  of  wealth,  5.  Transporta- 
tion and  political  science,  7.  The  scope  of  this  vol- 
ume, 9. 

■ 
PART  I 

THE  AMERICAN  RAILROAD  SYSTEM 

II. — Origin  of  the  American  Railroad        .        .        .  13-24 
Antecedents   of  the   railroad,    14.    Country   roads   and 
turnpikes,  14.     Canals  and  improved  rivers,  16.     Early 
history  of  the  railroad  in  America,  20.    References,  24. 

III. — Growth  of  the  American  Railroad  Net    .         .  25-37 

Growth  in  mileage  by  decades,  26.  Importance  of  the 
decade  from  1850-1860,  26.  Railroad  consolidations,  28. 
The  decade  1860-1870,  30.  The  first  transcontinental 
lines,  30.  The  panic  of  1873,  31.  Construction  from 
1 880- 1 890,  31.  Construction  since  1890,  32.  Compari- 
son of  American  and  European  railroad  mileage,  33. 
Magnitude  of  the  railroad  system  in  the  United  States 
33.     References,  37. 

v 


531 58? 


vi  CONTENTS 

CHAPTER  PAGE 

IV.^Tg*:  Mechanism   of  the  Railroad — Development 

OF   TRACK>>3tp^J.0C0M0TIVE 38-60 

Early  track  construction,  39.  Development  of  the  rail- 
road rail,  39.  Ties  and  ballast,  44.  Early  locomotives, 
45.  Later  types  of  locomotives,  51.  Classification  of  lo- 
comotives, 57.   Recent  improvements  in  locomotives,  58. 

V. — The   Mechanism    of   the   Railroad    (Concluded)  — 

The  Car,  Terminal  and  Operation  .  .  .  61-83 
Early  passenger  cars,  62.  Sleeping  cars,  63.  Steel  pas- 
senger cars,  63.  The  air  brake,  65.  Freight  cars,  66. 
Terminal  facilities,  68.  The  passenger  terminal,  69. 
The  freight  terminal,  72.  Electric  telegraph,  76.  Rail- 
road signaling,  yy.  Electrification  of  steam  railroads, 
78.    References,  82. 

VI. — The    Present    Railroad    System    of    the    United 

States 84-96 

Railroad  mileage  and  number  of  corporations  in  1914, 
84.  The  three  large  territorial  groups  of  railroads,  85. 
Territorial  grouping  into  seven  sections,  85.  Grouping 
by  ownership  and  control,  88.  Supply  of  railroad  fa- 
cilities in  the  United  States  and  foreign  countries,  94. 
References,  96. 

VII. — The  Railroad  Corporation  and  Its  Charter     .  97-107 

The  corporation  defined,  97.  The  corporation  and  part- 
nership distinguished,  98.  The  railroad  company  is  a 
quasi-public  private  corporation,  99.  The  power  of 
government  to  regulate  railroads,  100.  Railroad  char- 
ters, 102.  Size  of  railway  corporations,  104.  Insolvent 
corporations,  106.    References,  107. 

VIII. — Railroad  Capital 108-130 

Stocks  and  bonds,  108.  Classes  of  bonds,  109.  Classes  of 
stocks,  no.  Railroad  capitalization  in  the  United 
States,  no.     Stock  watering,  113.     Motives  for  stock 


CONTENTS  vii 

CHAPTER  PACE 

watering,  113.  The  promoter  and  the  underwriter,  116. 
Methods  of  stock  watering,  117.  Effect  of  stock  water- 
ing, 120.  Bases  of  railway  capitalization,  121.  Public 
regulation  of  railroad  capitalization,  124.  State  laws, 
125.  The  Hadley  Commission,  127.  Federal  regula- 
tion, 128.    References,  130. 

IX. — Earnings,  Expenses  and  Dividends  .  .  .  131-143 
Sources  of  revenue,  131.  Operating  revenues,  131.  Non- 
operating  income,  133.  Operating  expenses,  134.  Fixed 
charges,  and  other  expenditures,  135.  Net  income  and 
dividends,  135.  The  operating  ratio,  138.  Relation  of 
earnings  and  dividends  to  business  conditions,  141. 
References,  143. 

PART  II 

THE  RAILROAD  SERVICE 

X. — The  Freight  Service — Classification  of  Freight  147-159 
The  freight  business  the  most  important  railroad  serv- 
ice, 147.  Volume  of  freight  traffic  in  the  United  States, 
148.  Classification  of  freight,  149.  The  three  great 
classifications,  150.  Commodity  tariffs,  155.  Uniform 
classification,  156.  How  an  agent  ascertains  rates  on 
class  and  commodity  freight,  158.  Through  and  local 
freight,  159. 

XI. — The  Freight   Service    (Concluded) — Business  Or- 
ganization       160-180 

Freight  shipping  papers:  (1)  bills  of  lading,  (2)  the 
waybill,  160.  Unit  billing,  168.  Organization  of  freight 
service,  168.  Demurrage,  170.  Reciprocal  demurrage, 
171.  Fast  freight  lines,  171.  Cooperative  freight  lines, 
173.  Car  interchange  and  the  per  diem  system,  175. 
Records  of  car  movements,  175.  The  railroad  clearing 
house,  176.  Private  cars  and  private  car  lines,  177. 
References,  179. 


viii  CONTENTS 

CHAPTER  PAGE 

XII. — The  Passenger  Service         ....    181-200 

General  characteristics  of  the  passenger  service,  181. 
Comparison  of  the  trend  of  passenger  fares  and  freight 
rates  in  the  United  States,  182.  Volume  of  passenger 
traffic  in  the  United  States,  185.  Comparison  of  rail- 
road travel  in  the  United  States  and  foreign  countries, 

186.  Classification    of    passenger    travel    in    Europe, 

187.  Varieties  of  passenger  service  in  the  United 
States,  188.  Relation  between  the  Pullman  Company 
and  the  railroad  corporation,  193.  Passenger  tickets 
and  baggage  checks,  195.  Methods  employed  to  in- 
crease traffic,  196.  Opportunities  for  developing  pas- 
senger traffic,  197.  Electricity  and  the  passenger  serv- 
ice, 199.    References,  200. 

XIII. — The  Express  Service  of  the  Railroads    .   201-217 

General  character  of  the  express  service,  201.  The 
origin  of  the  express  service  and  its  subsequent  develop- 
ment, 203.  The  organization  of  the  American  Rail- 
way Express  Company,  206.  Express  shipping  papers, 
207.  The  contractual  relations  between  the  Ameri- 
can Railway  Express  Company  and  the  railroads,  207. 
Express  rates,  209.  Volume  of  express  business,  213. 
The  parcel  post  and  the  express  service,  214.  Should 
the  present  express  service  be  discontinued?  215.  Ref- 
erences, 216. 

XIV. — The  Mail  Service  of  the  Railroads  .        .   218-234 

The  mail  service  increases  with  the  progress  of  civili- 
zation, 218.  Classification  of  mail  matter,  219.  The  par- 
cel post  rate  system,  220.  General  statistics  of  mail 
traffic,  223.  Mail  transportation,  223.  The  railway 
post  office,  225.  The  services  performed  by  railroad 
companies  in  transporting  the  mails,  226.  Railway 
mail  pay,  227.  The  postal  deficit  and  its  cause,  232. 
References,  234. 


CONTENTS  ix 

CHAPTER  *AGE 

XV. — The  Organization  of  the  Service     .       .  235-249 

The  corporate  organization  of  a  railroad  company,  235. 
The  secretary's  department  and  law  department,  236. 
The  treasurer's  department,  237.  The  accounting  de- 
partment, 237.  The  operating  department  and  its  sub- 
divisions, 238.  The  traffic  department,  241.  Other  de- 
partments, 241.  Organization  of  the  Pennsylvania 
Railroad  Company  and  the  Illinois  Central  Railroad 
Company,  242.    References,  249. 

XVI. — The  Accounts  and  Statistics  of  the  Railroad 

Service  250-269 

The  usefulness  of  railroad  accounts,  250.  The  mate- 
rials of  railroad  accounts  and  statistics,  251.  The 
comptroller's  reports,  252.  Annual  report  of  the  presi- 
dent, 252.  The  income  statement,  253.  The  profit 
and  loss  account,  256.  The  general  balance  sheet,  257. 
The  need  for  accuracy  and  uniformity  in  railroad  ac- 
counts, 258.  Government  regulation  of  railroad  ac- 
counting, 259.  Five  leading  sources  of  railroad  statis- 
tics, 262.  Suggested  extensions  of  the  scope  of  trans- 
portation statistics,  265.     References,  268. 


PART  III 

THE  RAILROADS  AND  THE  PUBLIC 

XVII. — Interrailway  Relations — Railroad  Competi- 
tion and  Agreements  to  Maintain  Rates  273-287 

The  public  nature  and  the  unity  of  the  transportation 
service,  273.  Railroad  companies  are  cooperators  and 
competitors,  274.  Early  interrailway  relations,  275. 
Early  arrangements  for  through  traffic,  276.  Interrail- 
way rivalry;  its  beginnings,  277.  The  struggle  for  the 
Chicago-Atlantic  traffic,  278.  The  rivalry  of  the  At- 
lantic ports,  279.    Early  competition  in  the  West  and 


x  CONTENTS 

CHAPTER  PACE 

South,  280.  Nature  of  railroad  competition,  281.  The 
railroad  business  one  of  "increasing  returns,"  283.  The 
restraint  of  interraihvay  competition  a  necessity,  284. 
Cooperation  or  consolidation  is  the  alternative,  284. 
Agreements  to  maintain  rates,  284.  The  Saratoga 
Conference,  286. 

[  XVIII. — Interrailway  Relations  {Continued) — Pools 

and   Traffic  Associations       .       .       .   288-303 

Definition  of  pooling,  288.  Description  of  traffic  and 
money  pools,  288.  The  beginning  of  railroad  pooling, 
290.  Pooling  in  the  West,  291.  The  traffic  association 
and  the  pool  distinguished,  292.  Pools  in  the  South, 
292.  Early  agreements  in  trunk  line  territory,  294. 
The  trunk  line  pool  and  the  Joint  Executive  Commit- 
tee, 296.  The  situation  as  regards  railroad  pooling  in 
1887,  298.  Pooling  prohibited  by  the  Interstate  Com- 
merce Act,  299.  Pooling  contracts  were  illegal  at  com- 
mon law,  300.  Reorganization  of  pooling  contracts  to 
eliminate  the  pooling  feature,   301. 

XIX. — Ixterrailway     Relations      {Concluded) — The 

Present  Situation 304-320 

Efforts  of  trunk  lines  to  regulate  competition  after  the 
prohibition  of  pooling,  304.  Traffic  associations  decid- 
ed to  be  a  violation  of  antitrust  law  of  1890,  306.  Ef- 
fect of  the  decision  in  the  traffic  association  cases,  307. 
Progress  of  railroad  consolidation,  307.  Methods  of 
consolidation,  308.  "Community  of  interest,"  309. 
Traffic  associations  and  informal  agreements,  311. 
Pools  legalized,  314.  Classes  of  traffic  associations, 
315.     Shippers'  organizations,  318.     References,  319. 

XX. — Monopoly  and  Competition  in  the  Railroad 

Service  321-333 

Railroad  corporations  must  be  large  and  must  cooper- 
ate, 321.     Scope  of  railroad  monopoly  must  be  under- 


CONTENTS  xi 

CHAPTER  PAGB 

stood  in  considering  charges  and  government  regula- 
tion, 323.  What  is  meant  by  monopoly,  323.  The  oil 
business  an  example  of  monopoly,  324.  The  railroad 
business  has  not  been  a  complete  monopoly,  325.  Rail- 
road cooperation  is  of  two  kinds ;  the  attitude  of  the 
law  toward  each  kind,  326.  Railroad  competition  is  of 
two  kinds,  327.  Railroad  competition  is  not  confined  to 
junction  points,  328.  The  competition  of  markets,  328. 
Influence  of  competition  upon  local  rates,  330.  The 
monopoly  of  the  railroad  is  only  partial,  332.  Govern- 
ment regulation  of  a  partial  monopoly  may  be  neces- 
sary, 332.  The  term  natural  monopoly  not  strictly  ac- 
curate, 333.     References,  333. 


XXI. — Theory  of  Rates  and  Facts      .       .       .   334-348 

Need  of  a  theoretical  basis  of  rates  and  fares,  334. 
Meanings  of  the  term  "cost,"  335.  The  impossibility 
of  determining  exactly  the  cost  of  a  particular  service, 
336.  Cost  an  undesirable  as  well  as  an  impracticable 
basis  of  railway  charges,  337.  The  value  of  the  service 
theory  of  charges,  340.  The  value  of  commodity  the- 
ory, or  the  taxation  principle,  of  charges,  342.  Charg- 
ing "what  the  traffic  will  bear,"  343.  What  constitutes 
a  theoretically  just  rate?  344.  Discriminations  may  be 
just  or  unjust,  346.  The  socialization  of  rates  and 
fares,  347.     References,  348. 


XXII. — Rate  Making  in  Practice       .       .       .  349-364 

The  problem  of  rate  making  different  for  private  and 
state  railroads,  349.  Classification  the  first  step  in  mak- 
ing freight  rates,  350.  The  machinery  for  making 
freight  rates,  352.  Considerations  which  influence  the 
decisions  of  traffic  officials,  354.  Railroad  cooperation 
in  rate  making,  355.  Rate  systems  in  the  United  States, 
356.  The  trunk  line  rate  system,  356.  The  southern 
rate   system,    357.      The    western    rate    system,    358. 


xii  CONTENTS 


CHAPTER  PAGE 

Transcontinental  rates,  359.  Import  and  export  rates, 
360.  The  machinery  for  making  passenger  fares,  360. 
The  problem  of  fixing  passenger  fares  as  compared 
with  the  freight  rate  problem,  361.  The  general  tariff 
policy  of  American  and  foreign  railroads,  363.  Ref- 
erences,  364. 


PART  IV 
THE  RAILROADS  AND  THE  STATE 


XXIII. — Railroads  and  the  State.     Regulation  in 

the  United  Kingdom  and  Germany       .   367-406 

The  twofold  relation  of  the  government  to  the  rail- 
roads, 367.  The  form  which  the  state's  relation  to 
railroads  may  assume,  370.  Railroads  of  the  United 
Kingdom  received  no  state  aid,  371.  Early  competi- 
tion and  consolidation  in  Great  Britain,  372.  Rail- 
road cooperation,  373.  '  British  regulation  of  railroad 
consolidation,  374.  Early  regulation  of  railroad  rates 
in  Great  Britain,  375.  The  Act  of  1854,  378.  The 
Act  of  1873,  379-  The  Railway  and  Canal  Traffic 
Act  of  1888,  381.  Maximum  rate  laws,  383.  The 
Act  of  1894,  384-  British  railroads  and  the  war,  385. 
The  Ministry  of  Transport  Act  of  1919,  387.  The 
Railways  Act  of  192 1,  389.  Early  railway  policy  in 
Germany,  390.  The  nationalization  of  Prussian  rail- 
ways, 394.  The  Prussian  railway  organization,  395. 
The  results  of  railway  nationalization  in  Prussia,  398. 
German  railways  and  the  war,  400.  The  present  rail- 
way policy  of  Germany,  400.  Railway  policies  of 
other  countries,  402.  Conditions  which  determine  the 
railway  policy  of  a  state,  404.     References,  405. 


CONTENTS  xiii 

CHAPTER  PAGE 

XXIV. — Public  Aid  to   Railroad   Construction   in   . . 
\  the  United  States 407-421 

AJrJ    giVpn    hy    thp    Stnt-pg    «-n_  iiailrmrk,    jnS        Forms  of 

aid  given  by  the  States,  \ck)  Amount_of  aid  given  hy 
the  States,  409.  The  results  of  state  aid  wrrp  nnsaf- 
Jsfactorv,  410.  National  aid  to  railway  construction. 
411.  Terms  of  the  land  grants,  412.  The  grants  to  the 
Pacific  roads,  412.  Repeal__of_  the  land  grants,4i5. 
The  loan  of  public  funds  to  aid  railroads^  41 S-  Con- 
■^erning  the  policy  of  loans  and  land  grants,  417, 
Countv.  municipal,  and  individual  aid  _tn  railroad 
^building,  418.     Local  individual  aid,  419.     Referenrfs,  . 

420._ 

XXV. — Regulation  of  Railroads  by  the  American 
State  Governments — The  State  Commis- 
sions         422-447 

Powers  of  the  Federal  and  State  governments  over 
railroads,  422.  Little  regulation  before  1870,  423. 
Charter  limitations  on  rates  and  profits,  424.  Early 
railroad  commissions  and  their  functions,  426.  The 
demand  for  rate  regulation,  427.  The  two  types  of 
railroad  commissions,  427.  The  Massachusetts  com- 
mission of  1869,  427.  Railroad  regulation  in  the  West 
and  South,  429.  The  granger  laws  and  the  Illinois 
commission,  430.  Granger  laws  upheld  by  the  Su- 
preme Court,  432.  The  Wabash  decision  of  1886,  433. 
Modification  of  the  early  granger  laws,  434.  Recent 
methods  of  state  regulation ;  the  utilities  commission, 
435.  The  powers  of  present  state  commissions;  the 
law  of  Illinois,  436.  Railroad  commissions  and  cor- 
poration commissions,  439.  Objections  to  state  regu- 
lation, 440.  Changes  effected  by  the  Transportation 
Act  of  1920,  443.     References,  445, 


xiv  CONTENTS 

CHAPTER  PAGB 

XXVI. — Railroad  Regulation  by  the  Federal  Gov- 
ernment— The  Act  of  1887      .       .       .  448-466 

Origin  of  the  demand  for  Federal  regulation,  448.  The 
Windom  report  of  1874,  449.     The  Cullom  report  of 

1886,  450.  Early  attempts  at  Federal  regulation,  450. 
The   enactment   of   the   Interstate   Commerce  Act  of 

1887,  451.  Chief  provisions  of  the  law,  451.  The 
operation  of  the  law;  the  commission's  orders  not 
binding,  456.  Power  of  the  commission  to  secure 
testimony,  458.  The  power  of  the  commission  to 
regulate  rates,  459.  The  long  and  short  haul  clause, 
460.  Import  rates,  463.  Results  accomplished  by  the 
law  of  1887,  464.  Needed  changes,  464.  References, 
466. 

XXVII. — Federal  Legislation  from  1903  to  1914  467-488 

The  Elkins  Act  of  1903,  467.  The  Expediting  Act  of 
1903,  468.  Enactment  of  the  Hepburn  amendment  of 
1906,  469.  Main  provisions  of  the  Hepburn  amend- 
ment, 469.  The  question  of  judicial  review,  474.  The 
grounds  upon  which  the  courts  set  aside  orders  of  the 
commission,  475.  The  Mann-Elkins  Act  of  1910,  477. 
Other  amendments  to  the  Interstate  Commerce  Act, 
1910-1915,  480.  The  Federal  Antitrust  law  applicable 
to  railroads,  483.  Federal  regulation  of  railroad  opera- 
tion, 484.  General  character  of  the  system  of  Federal 
regulation  as  it  existed  in  1 9 10,  486.  The  need  for 
modification,   487.     References,   487. 


XXVIII. — New    Railroad    Problems;    Government 

Operation 489-511 

Decline  of  earnings,  489.     Railroad  bankruptcies,  492. 
The  Adamson  Act,   494.      Effects  of   the  war,   496. 


CONTENTS  xv 


CHAPTER 


PAGE 

Government  control,  504.  The  Railroad  Adminis- 
tration, 505.  Operating  results,  509.  Financial  re- 
sults, 510.     References,  511. 

XXIX. — The  Transportation  Act  of  1920  .   512-533 

Reconstruction  plans,  512.  The  Cummins  and  the 
Esch  bills,  514.  The  Transportation  Act,  515.  Labor 
disturbances,  523.  Rate  increases,  524.  The  business 
depression,  525.  Operation  of  the  law,  528.  Refer- 
ences, 533. 

XXX. — The  Courts  and  Railroad  Regulation  .  534-562 
Laws  are  partly  court  made,  534.  Function  of  the  ju- 
diciary in  railroad  regulation,  536.  Development  of 
judicial  review,  536.  State  rate  regulation,  537.  The 
relation  of  the  courts  to  unreasonable  rates  made  by 
railroad  companies,  541.  Injunctions  to  prevent  rate 
advances,  543.  Injunctions  to  prevent  rate  wars,  544. 
Injunctions  against  secret  rebates,  547.  Injunctions 
and  labor  disputes,  548.  The  general  law  regarding 
strikes,  548.  Injunctions  to  protect  property  and  per- 
sonal rights,  549.  Injunctions  compelling  railroad  em- 
ployees to  work,  550.  Use  of  the  injunction  in  the 
Debs  strike  of  1894,  55 T-  Regulation  of  the  use  of  the 
injunction  by  the  Clayton  Antitrust  Act,  553.  Railroad 
receiverships,  554.  Railroad  insolvency  in  the  United 
States,  556.  Causes  of  railroad  insolvency,  557.  Ob- 
jections to  the  present  system  of  railroad  receiverships, 
559.    Suggested  changes,  560.    References,  561. 

'    XXXI. — The  Problem  of  Government  Ownership 
\  and  Government  Regulation  in  the  United 

States  563-577 

The  twofold  nature  of  the  problem  of  government  reg- 
ulation, 563.   The  LraxLmethods  of  government  control. 
564.    Government  ownership  a  question  of  expediency, 
50"^.     The  experience  of  one  country  not  necessaxily-- 
a  safe  guide  of  action  in  another,  566.     Should   the 


1\ 


xvi  CONTENTS 

CHAPTER  PACE 

Unitgd  States  adopt  a  policy  of  government  own e rsh  ip? 
567.  Probable  effect  of  such  a  policy  upon  the~7aiJ5o?d 
service,  567.  Probable  effect  upon  rates,  56o/r~'Sociali- 
zation  of  rates  and  fares  possible  under  government 
ownership,  571.  Effect  of  government  ownership  on 
politics  and  government,  572.  The  success  of  govern- 
ment regulation  in  the  United  States,  573.  Need  for  a 
constructive  policy,  575.     References,  577. 

Appendix — Questions  and  Topics           .        .        .   579-609 
Index 611 


LIST  OF  ILLUSTRATIONS  AND  MAPS 


ILLUSTRATIONS 

The  stagecoach,  generally  used  for  passenger  travel  before 

the  introduction  of  the  railroad 
The  Conestoga  wagon,  the  predecessor  of  the  freight  car 

in  the  Middle  Atlantic  States  . 

The  Rocket,  1829 

Advertisement   illustrating   the   transportation   service    in 

1835  ...... 

Advertisement   showing   what   the   transportation   service 

was  in  1837     ..... 

Track  with  wooden  stringers,  surfaced  with  straps  of  iron 

Track  of  granite  sills  plated  with  straps  of  iron 

Track  of  cast  iron  rails  resting  on  granite  blocks 

Rolled  iron  U-rail,  1844  .... 

Peter  Cooper's  locomotive,  1830 

The  Old  Ironsides,  1832  .... 

De  Witt  Clinton  engine  and  train,  1831    . 

John  Bull  engine  and  train,   1831    . 

Lancaster  engine  and  train,  run  on  Pennsylvania  State 
Railroad,  1834  .... 

First  Campbell  locomotive,  1836 

American   (4-4-0)   type  of  locomotive     . 

Ten-wheel  (4-6-0)  type  of  locomotive     . 

Mogul  (2-6-0)  type  of  locomotive  . 

Consolidation  (2-8-0)  type  of  locomotive 

Mikado  (2-8-2)  type  of  locomotive  . 


PAGH 
14 

15 

21 

34 

36 
38 

39 

40 

41 
46 
48 
48 
49 

49 

50 
5i 
52 
52 
53 
53 


xvu 


xviii  LIST  OF  ILLUSTRATIONS  AND  MAPS 


Atlantic  (4-4-2)  type  of  locomotive  . 

Pacific   (4-6-2)   type  of  locomotive  . 

Triplex  articulated  (2-8-8-8-2)  locomotive 

Passenger   coach,    1835.     Used   on   Pennsylvania   portage 

railroad  over  the  Alleghany  Mountains,  Pennsylvania 
An  early  passenger  coach       ..... 

All  steel  passenger  coach         ..... 

All  steel  box  car    ....... 

All  steel  gondola  car      ...... 

Grand  Central  Station,  New  York  City  . 

Bird's-eye  view  of  the  Grand  Central  Terminal,  New  York 

v^ity  »••••••• 

Union  Station,  Washington,  D.  C.  . 

Electric  locomotive  ...... 

Gas  electric  motor  car   ...... 

Diagram   of  railroad  capitalization   and   dividends,   1890 

1918  •  •  •  •  •  •  •  • 

Railway  earnings  in  the  United   States  since  1890     . 

Straight  bill  of  lading     ...... 

Order  bill  of  lading         ...... 

Merchandise  waybill        ...... 

Card  waybill  ........ 


54 
55 
56 

61 
62 

64 
66 
68 
70 

71 
73 
79 
81 

115 
140 

161 

163 

165 
166 


MAPS 

FACING   PAGE 

Canals  and  railroads  in  New  York  in  1840       .         .  .12 

Canals  and  railroads  in  Pennsylvania  in  1840  .          .  13 

Map  of  the  United  States  showing  railroads  in  1850  .       28 

Map  of  the  railroads  in  the  United  States  in  i860     .  .       28 

Map  of  the  United  States  showing  railroads  in  1870  .       28 

Map  of  the  United  States  showing  railroads  in  1880  .       28 

Map  of  the  United  States  showing  railroads  in  1890  .       28 

Mao  of  the  railroads  in  the  United  States  in  1921    .  .      28 


LIST  OF  ILLUSTRATIONS  AND  MAPS  xix 

FACING  PAGE 

Vanderbilt  group 90 

Pennsylvania  group 90 

Morgan  group 90 

Union  Pacific  and  Southern  Pacific  Systems      ...  90 

Hill  group 90 

Chicago,  Milwaukee  and  St.  Paul 90 

Atchison,  Topeka  and   Santa  Fe 90 

Territorial  districts  of  the  United  States  adopted  by  the 

Interstate  Commerce  Commission  ....  90 
Section  of   express   map  showing  method   of  numbering 

blocks 208 

Section  of  parcel  post  map  for  unit  No.  869   .        .        .  218 


PRINCIPLES  OF  RAILROAD 
TRANSPORTATION 


CHAPTER  I 

INTRODUCTION— DEFINITION    AND   SCOPE   OF   TRANS- 
PORTATION 

Transportation  denned,  2.  The  technics  of  transportation,  2.  The 
service,  2.  The  economics  of  transportation,  3.  Transporta- 
tion economics  and  the  science  of  political  economy,  3.  Trans- 
portation and  the  production  of  wealth,  4.  Transportation  and 
the  use  or  consumption  of  wealth,  4.  Relation  of  transportation 
to  the  exchange  of  wealth  or  commerce,  4.  Relation  of  trans- 
portation to  the  distribution  of  wealth,  5.  Transportation  and 
political  science,  7.     The  scope  of  this  volume,  9. 

Transportation  has  to  do  with  travel,  traffic,  and  com- 
munication ;  it  is  concerned  with  the  movement  of  persons 
and  things,  and  with  the  transmission  of  ideas.  The  term 
is  applied  both  to  the  instruments  by  which  movement  is 
accomplished  and  to  the  service  performed  by  those  agen- 
cies. The  several  instrumentalities — waterways,  highways, 
railroads  and  the  vehicles  used  upon  them,  the  telegraph 
and  telephone — are  spoken  of  collectively  as  the  transpor- 
tation system.  In  the  study  of  transportation  attention  may 
be  directed  either  to  the  system  or  to  the  service. 

The  system  is  the  machine  that  performs  the  service,  and 
a  study  of  it  is  a  technical  one,  covering  the  engineering 

I 


2  RAILROAD  TRANSPORTATION 

problem  connected  with  the  construction,  maintenance,  and 
operation  of  the  means  or  mechanism  of  transportation,  and 
also  including  the  business  principles  and  methods  prevail- 
ing in  the  management  of  the  several  parts  of  the  various 
organizations  engaged  in  performing  the  transportation  serv- 
ice. The  engineering  side  of  the  technics  of  transportation 
is  studied  in  the  civil  and  mechanical  engineering  schools, 
which  give  instruction  in  the  principles  and  methods  of 
building  the  structures  and  machinery  pertaining  to  each  of 
the  several  transportation  agencies — instruction  in  improv- 
ing rivers,  building  canals,  highways,  and  railroads;  in  de- 
signing and  constructing  ships,  engines,  locomotives,  and 
cars;  and  in  the  several  branches  of  electrical  engineering. 
The  principles  and  methods  of  administration,  or  the  busi- 
ness technics,  with  the  exception  of  such  as  may  be  included 
in  the  study  of  accounting  and  telegraphy,  are  as  yet  but 
little  taught  in  American  schools.  They  must  be  mastered 
in  the  school  of  experience.  In  this  regard  the  educational 
facilities  in  the  United  States  are  somewhat  inferior  to 
those  in  some  European  countries. 

In  studying  the  transportation  service,  only  incidental 
regard  need  be  given  either  to  the  agencies  which  perform 
the  service  or  to  the  technics  of  the  administration  of  those 
agencies.  The  purposes  of  the  study  are  threefold :  (i)  To 
understand  the  nature  and  scope  of  the  transportation  serv- 
ice both  as  a  whole  and  with  such  detail  as  may  be  necessary 
to  an  intelligent  consideration  of  each  of  the  several  branches 
of  the  service;  (2)  to  analyze  the  relations  of  the  com- 
panies and  individuals  who  perform  the  services  to  the 
users  of  the  service — the  relations,  actual  and  desirable,  of 
the  carriers  and  the  public;  (3)  to  ascertain  the  degree 
and  form  of  supervision  or  control  that  the  Government 
should  exercise  over  the  relations  of  the  carriers  and  the 
public. 

In  contrast  with  the  technics  of  transportation,  the  study 


SCOPE  OF  TRANSPORTATION  3 

of  the  service  may  be  called  the  economics  of  transporta- 
tion— the  study  which  treats  of  the  characteristics  of  the 
transportation  service,  the  business  relations  of  the  carriers 
and  the  public,  and  the  governmental  supervision  or  con- 
trol of  transportation.  This  study  comprises  a  part  of  each 
of  two  social  sciences :  economics  or  political  economy  and 
civics  or  political  science. 

Political  economy,  or  economics,  is  the  science  of  busi- 
ness affairs,  or,  as  it  is  sometimes  defined,  the  science  which 
treats  of  the  efforts  of  men  to  satisfy  their  wants.  Among 
the  manifold  instrumentalities  men  have  devised  to  assist 
them  in  the  business  activities  which  they  carry  on  to  create 
the  wealth  whereby  their  wants  are  satisfied,  transportation 
agencies  have  come  to  be  indispensable,  and  a  study  of  the 
services  performed  by  those  agencies  constitutes  an  impor- 
tant part  of  the  science  of  business  affairs.  The  position 
of  transportation  economics  in  political  economy  can  be 
specifically  stated  by  explaining  briefly  the  relation  of  the 
transportation  service  to  the  production,  consumption,  ex- 
change, and  distribution  of  wealth. 

Production  consists  in  making  matter  more  useful  for 
purposes  of  consumption.  It  is  the  creation  of  utilities.  To 
give  matter  the  ability  to  satisfy  wants,  two  things  must  be 
done :  The  commodities  must  be  given  the  form  or  the 
qualities  which  the  user  desires  them  to  possess,  and  the  ar- 
ticles must  be  taken  to  the  user.  The  form  and  intrinsic 
qualities  that  make  matter  useful  result  from  agriculture, 
manufacture,  and  the  various  industries  by  which  things 
are  grown  and  shaped.  The  transportation  service  puts 
commodities  in  the  place  where  they  can  be  used.  An  article 
that  has  been  grown,  mined,  or  manufactured  has  received 
only  a  part  of  the  services  by  which  it  becomes  useful.  Only 
the  intrinsic  utilities  of  form  or  quality  have  been  created; 
the  usefulness  which  depends  upon  the  location  of  the  ar- 
ticle— its   place   utilities — has   yet   to   be   given   it.      Place 


4  RAILROAD  TRANSPORTATION 

utilities  are  created  by  the  transportation  services,  which 
are  thus  a  part  of  the  general  process  of  production. 

The  relation  of  transportation  to  production  may  also  be 
shown  by  considering  the  general  effect  which  improvements 
in  transportation  services  have  had  on  the  use  or  consump- 
tion of  wealth.  Men  produce  commodities,  because  they 
want  the  commodities,  because  they  wish  to  hoard  up,  or 
use — that  is,  "consume" — them ;  accordingly,  what  men  pro- 
duce depends  upon  the  kinds,  number,  and  intensity  of  their 
wants.  From  this  it  follows  that  any  force  or  influence 
that  changes  men's  wants  will  also  affect  their  productive 
activities.  This  truth  is  illustrated  by  the  fact  that  the  un- 
civilized man  will  do  but  little  work,  because  he  wants 
but  a  few  things.  The  only  way  to  make  him  work  is  to 
create  wants  in  him. 

The  causes  which  modify  the  wants  of  men,  and  thus 
change  what  they  produce  and  consume,  are  many,  but 
nothing  will  do  more  to  create  new  wants  or  more  intense 
ones  than  a  decrease  in  the  cost  and  an  increase  in  the 
quantity  and  variety  of  consumable  commodities.  The 
availability  of  commodities  has  been  multiplied  many  times 
by  improvements  in  transportation,  and  the  effect  of  this 
upon  human  wants  has  unquestionably  been  great.  Indeed, 
with  our  present  facilities  of  transportation,  there  is  prac- 
tically no  limit  to  the  number  of  wants  we  can  satisfy,  and 
our  rapidly  increasing  demands  have  spurred  us  on  to  an 
ever-widening  range  of  production.  . 

Commerce  consists  in  exchange  of  commodities  between 
separated  localities — it  is  the  agency  by  means  of  which  the 
consumer  and  producer  are  brought  together.  The  process 
involves  a  sale  and  purchase  of  goods,  their  transmission 
from  the  seller  to  the  buyer,  and  the  settlement  of  business 
accounts.  Transportation  is  one  of  the  mechanisms  through 
which  this  is  accomplished.  Among  the  other  agencies  of 
commerce  are  the  stock  exchanges,  the  bourses,  the  markets, 


SCOPE  OF  TRANSPORTATION  5 

the  banks,  the  trust  companies,  and  insurance  companies; 
but  of  these  several  auxiliaries  the  transportation  service 
is  the  least  dispensable.  With  the  growing  subdivision  and 
specialization  in  productive  effort,  with  the  continually  in- 
creasing tendency  to  locate  industries  where  they  can  be 
carried  on  most  economically,  with  the  constant  extension 
of  the  areas  from  which  the  materials  of  industry  are  drawn 
and  over  which  the  products  are  marketed,  commerce,  and 
particularly  that  part  of  commerce  which  is  concerned 
with  the  movement  of  persons  and  things,  becomes  of  ever 
greater  consequence  in  all  productive  enterprises.  The 
production  of  wealth  has  been  greatly  enhanced  by  the  en- 
largement of  commerce,  and  the  extension  of  commerce 
has  been  possible  mainly  because  of  the  improvements  that 
have  been  made  in  the  agencies  by  which  the  various  trans- 
portation services  are  performed. 

The  relation  of  transportation  to  the  distribution  of 
wealth  is  somewhat  complex.  Wealth  is  the  creation  or 
product  of  three  factors :  land  or  the  resources  of  nature, 
capital,  and  human  effort,  physical  and  mental.  Nature  is 
the  source  of  wealth,  capital  is  the  tool,  and  man  is  the 
agent  by  which  the  source  is  drawn  upon.  The  income 
which  men  derive  from  the  possession  of  natural  agencies 
and  resources  is  called  rent,  that  secured  from  the  owner- 
ship of  capital  is  termed  interest,  that  obtained  from  effort 
is  named  wages.  The  income  or  rent  received  by  the  owner 
of  "land"  depends  upon  two  things :  the  productivity  or 
intrinsic  characteristics  of  the  land  or  natural  resource,  and 
its  location.  The  rent  which  owners  of  agricultural  land  can 
command  depends  upon  its  fertility  and  its  location  with 
reference  to  markets ;  rents  from  mines  and  forests  are  de- 
termined by  productivity  and  location ;  rents  on  building 
sites  result  mainly  from  location.  As  far  as  rent  depends 
upon  location,  the  determining  factor  is  transportation, 
and  every  improvement  or  change  in  the  facilities  or  costs  of 


6  RAILROAD  TRANSPORTATION 

transportation  services  must  have  an  influence  upon  the  total 
amount  of  "rent"  received  by  the  owners  of  natural  agents 
and  must  readjust  the  distribution  of  that  form  of  income 
among  its  recipients. 

The  relation  of  the  transportation  service  to  the  income 
from  capital  is  twofold ;  the  total  income  from  capital  has 
been  greatly  increased  by  the  modern  transportation  facili- 
ties, but  the  rate  of  return  has  been  lowered.  Capital  is  so 
generally  and  extensively  employed  in  production  today,  as 
the  result  of  improved  transportation,  the  use  of  machinery, 
and  other  well-known  causes,  that  we  have  come  to  speak 
of  modern  productive  processes  as  capitalistic  in  contrast 
with  those  of  a  hundred  years  ago,  when  most  things  were 
done  by  manual  labor  and  when  land  and  labor  received 
nearly  all  of  the  income  from  production.  But  the  accumu- 
lation of  wealth  has  been  so  rapid  as  to  make  capital  abun- 
dant and  to  cause  the  rate  of  interest  to  decline  rather  than 
rise.  This  fall  in  the  rate  of  interest,  however,  has  been 
slower  than  it  would  have  been  had  not  the  opportunities 
for  investment  been  greatly  multiplied  by  the  extension  and 
improvement  of  the  means  of  transportation. 

By  wages,  the  income  resulting  from  human  effort,  is 
popularly  meant  the  money  payment  received  by  those  who 
toil  with  hand  or  brain ;  but  in  scientific  discussion  the  word 
more  frequently  means  the  amount  of  useful  commodities 
received  by  the  workers.  The  "real"  wages  of  a  day's 
labor  are  the  commodities  which  a  day's  labor  will  secure. 
Possibly  transportation  has  had  no  more  marked  effect  than 
that  of  increasing  the  quantity  and  variety  of  useful  things 
which  come  within  the  range  of  the  toiler's  income.  The 
luxuries  of  past  generations  have  now  become  necessities, 
because  of  the  reductions  in  the  costs  of  production  effected 
by  improved  transportation  and  other  forces.  Furthermore, 
as  the  laborer's  real  wages  have  increased,  his  efficiency  has 
become  greater  and  his  impulses  to  effort  have  been  strength- 


SCOPE  OF  TRANSPORTATION  7 

ened.  To  have  is  to  want  more,  to  strive  harder.  We 
call  this  raising  the  standard  of  living,  the  progress  of 
civilization. 

As  the  result  of  cheap  transportation,  those  who  pro- 
duce have  multiplied  their  wants  and  their  efforts ;  and 
with  the  present  highly  developed  transportation  service 
to  aid  them,  their  efforts  are  far  more  productive  than 
they  would  otherwise  be.  Human  effort  creates  enor- 
mously more  wealth  than  was  formerly  possible.  Whether, 
in  the  distribution  of  wealth  among  the  classes  who  control 
or  contribute  to  the  forces  of  production,  labor  or  human 
effort  receives  an  adequate  share  of  the  total,  is  a  question 
concerning  which  there  are  differences  of  opinion.  The 
absolute  income  of  labor  is  greater  than  it  was  when  cruder 
processes  of  production  prevailed,  and  that  income  con- 
tinues to  increase ;  but  it  is  by  no  means  certain  that  the 
forces  controlling  the  distribution  give  labor  an  equitable 
share. 

The  relation  of  the  government,  local,  State,  and  Federal, 
to  transportation  is  such  an  intimate  one  that  a  study  of 
the  transportation  service  necessarily  involves  a  considera- 
tion of  some  duties  and  activities  of  the  State,  subjects 
covered  by  the  study  of  government  or  political  science. 
Indeed,  some  branches  of  transportation,  as  the  mail  service, 
are  everywhere  carried  on  by  the  government.  The  city 
streets  and  most  country  roads  are  highways  maintained  at 
public  expense ;  and  the  commercially  important  lakes, 
streams,  and  harbors  are  usually  improved  and  maintained 
wholly  or  partially  by  the  use  of  public  funds.  Canals  are 
sometimes  private  enterprises,  but  more  often  are  state 
works.  Street  railways,  especially  in  Europe,  are  frequently 
owned  by  the  cities,  and  sometimes  are  operated  by  them.  In 
many  countries  the  steam  railroads  are  owned  and  managed 
by  the  government,  and  in  all  countries  where  private 
ownership  prevails  the  railroad  service  is  subject  to  govern- 


8  RAILROAD  TRANSPORTATION 

ment  regulation.  The  telephone  service  has  thus  far  usually 
been  conducted  by  private  companies. 

Whether  performed  by  the  government,  or  by  companies, 
or  by  individuals,  the  transportation  service  is  of  a  public 
nature.  This  is  a  well-established  principle  of  law,  the 
Supreme  Court  of  the  United  States  having  held  that 
"the  business  of  a  public  carrier  is  of  a  public  nature,  and  in 
performing  it  the  carrier  is  also  performing  to  a  certain  ex- 
tent a  function  of  government  which  requires  him  to  per- 
form the  service  upon  equal  terms  to  all."  The  principle 
applies  as  much  to  railroads  built  and  operated  by  corpora- 
tions as  to  other  transportation  agencies. 

Whether  the  use  of  a  railroad  is  a  private  one  depends  in 
no  measure  upon  the  question  who  constructed  it  or  who  owns 
it.  It  has  never  been  considered  a  matter  of  any  importance 
that  the  road  was  built  by  the  agency  of  a  private  corporation. 
No  matter  who  is  the  agent,  the  function  performed  is  that  of 
the  state.    Though  the  ownership  is  private,  the  use  is  public.1 

The  general  basis  of  this  principle  is  the  vital  dependence 
of  the  social  organization  upon  transportation.  A  service 
must  be  of  a  public  nature  that  is  essential  to  orderly  human 
relations,  to  all  industrial  activities,  and  the  progress  and 
welfare  of  society.  The  public  nature  of  the  transportation 
services  of  railroads  and  some  other  carriers  is  recognized 
by  the  state  in  the  granting  of  franchises  giving  to  such 
carriers  the  power  to  take  possession  of  the  private  property 
they  may  need.  To  quote  the  language  of  the  United  States 
Supreme  Court, 

The  State  would  have  no  power  to  grant  the  right  of  appro- 
priation unless  the  use  to  which  the  land  was  to  be  put  was  a 
public  one.    Taking  land  for  railroad  purposes  is  a  taking  for 

1  Olcott  v.  The  Supervisors,  16  Wallace.  ^5. 


SCOPE  OF  TRANSPORTATION  9 

a  public  purpose,  and  the  fact  that  it  is  taken   for  a  public 
purpose  is  the  sole  justification  for  taking  it  at  all.* 

In  studying  the  transportation  service,  then,  we  are 
dealing  with  one  of  the  functions  of  government,  and  one 
of  the  important  branches  of  political  science.  In  consider- 
ing this  service  the  student  is  concerned  with  the  government 
at  work  either  performing  the  service  directly  or  insuring  its 
proper  performance  by  persons  and  corporations  receiving 
from  the  state  their  authority  to  act,  and  subject  in  their 
actions  to  the  regulative  control  of  the  government.  The 
problems  of  the  government  ownership,  operation,  and 
regulation  of  the  agencies  of  transportation  require  the 
investigator  to  inquire  into  some  most  interesting  questions 
regarding  the  functions  of  government  and  the  proper  scope 
of  its  activities. 

This  volume  is  concerned  with  the  transportation  serv- 
ice performed  by  steam  railroads.  It  does  not  discuss  the 
engineering  and  other  technical  questions  of  railroad  con- 
struction and  operation,  but  describes  the  American  railroad 
system,  gives  an  account  of  the  service  performed  by  the 
different  branches  of  the  railroad  organization,  considers  the 
business  relations  of  the  railroads  and  the  public,  and  dis- 
cusses the  problems  of  government  regulation.  The  book 
is  a  study  in  railway  economics,  and  is  intended  to  be  an 
introduction  to  the  general  subject  of  railroad  transporta- 
tion, a  volume  that  may  profitably  precede  or  accompany 
a  more  special  study  of  a  particular  branch  of  the  rail- 
way service. 

1  United  States  v.  Joint  Traffic  Association  ct  al.,  171  U.  S.,  505. 


PART  I 
THE  AMERICAN  RAILROAD  SYSTEM 


THE  LIBRARY 

OF  THE 

UNIVERSITY  Or  ILLINOIS 


-[HE  UBRMW 


THE  LIBRARY 

or  THE 

UNIVERSITY  Or  ILLiriCiS 


CHAPTER  II 

ORIGIN  OF  THE  AMERICAN  RAILROAD 

Antecedents  of  the  railroad,  14.  Country  roads  and  turnpikes,  14. 
Canals  and  improved  rivers,  16.  Early  history  of  the  railroad 
in  America,  20.     References,  23. 

Until  the  fourth  decade  of  the  nineteenth  century  the  in- 
land highways  of  travel  and  trade  were  wagon  roads,  rivers 
and  canals.  As  compared  with  Europe  the  United  States 
was  poorly  equipped  with  these  means  of  transportation, 
because  the  newness  of  the  country,  the  sparseness  of  popu- 
lation and  the  undeveloped  state  of  industry  had  kept  both 
the  government  and  individuals  from  devoting  to  the  build- 
ing of  roads  and  waterways  the  meager  volume  of  capital 
available  for  investment.  Most  of  the  countries  of  western 
Europe  still  lead  the  United  States  in  the  building  of  roads 
and  waterways,  though  the  railway  mileage  in  this  country 
now  surpasses  that  of  all  Europe.  In  recent  years,  however, 
there  has  been  a  widespread  movement  in  the  United  States 
toward  the  betterment  of  roads  and  the  construction  of  an 
adequate  system  of  inland  waterways,  and  a  vast  amount 
of  work  has  been  accomplished,  in  which  Federal,  State 
and  local  governments  as  well  as  private  individuals  and  cor- 
porations have  shared. 

Until  near  the  end  of  the  eighteenth  century  the  country 
roads  constructed  in  America  were  built  and  maintained  by 
the  local  governments — that  is,  by  the  towns  in  New  Eng- 
land, the  townships  in  the  middle  Atlantic  section,  and  the 
counties   in   the   South.     With  the  growth   of  population 

13 


14 


RAILROAD  TRANSPORTATION 


and  business  these  highways  became  so  inadequate  that 
corporations  of  individuals  began  the  construction  of  roads 
and  charged  tolls  for  their  use.  These  roads  were  called 
turnpikes,  because  at  the  places  where  tolls  were  collected 
there  was  placed  across  the  road  a  gate  consisting  of  a  pole 
armed  with  pikes  and  so  hung  as  to  turn  upon  a  post. 

The  construction  of  toll  roads  began  soon  after  1790,  and 
numerous  turnpike  companies  were  chartered  by  each  State, 


The  Stagecoach,  Generally  Used  fob  Passenger  Travel  Before 
the  Introduction  of  the  Railroad 


particularly  by  the  Middle  and  New  England  States.  The 
greatest  mileage  was  built  in  Pennsylvania,  and  what  was 
done  in  that  State  is  typical  of  what  occurred  in  many  other 
parts  of  the  country.  In  1790  a  company  was  chartered 
to  build  a  turnpike  from  Philadelphia  to  Lancaster,  and  this 
road,  begun  in  1792,  was  completed  in  1794.  Later  this 
road  became  a  part  of  a  continuous  line  of  turnpikes  extend- 
ing from  Trenton,  N.  J.,  to  Steubenville,  on  the  Ohio  River, 
a  distance  of  343  miles.  Before  the  construction  of  railroads 
began  in  this  country,  102  Pennsylvania  companies  had  built 
2,380  miles  of  roads  in  that  State  at  a  cost  of  nearly 
$8,500,000.  Although  these  toll  roads  did  not,  as  a  rule, 
prove  to  be  very  profitable  to  the  companies  which  built 
them,  they  were  of  great  benefit  to  the  people  of  the  State. 
Some  of  these  turnpikes  are  still  operated  as  toll  roads,  al- 


ORIGIN  OF  THE  AMERICAN  RAILROAD       15 

though  most  of  them  have  very  properly  become  free  public 
highways. 

Some  turnpike  roads  were  built  with  funds  donated  by 
the  State  and  by  the  Federal  Government  at  the  time  when 
public  aid  was  being  given  freely  to  works  of  "internal  im- 
provement." The  most  celebrated  of  these  turnpikes  was 
the  Cumberland  Road,  or  the  "National  Pike,"  constructed 
by  the  United  States.  The  first  appropriation  for  the  build- 
ing of  this  highway  was  made  in  1806,  and  the  first  con- 


TlIE  CONESTOGA  WAGON,  THE   PREDECESSOR  OF  THE   FREIGHT   Car  IN 

the  Middle  Atlantic  States 


struction  contract  was  let  in  181 1.  The  road  was  built 
westward  from  Cumberland,  Md.,  and  by  1818  it  reached 
Wheeling  on  the  Ohio  River.  Subsequently  it  was  ex- 
tended across  Ohio  and  Indiana,  and  by  1838  it  reached 
Vandalia  in  central  Illinois.  It  was  to  have  gone  to  Jeffer- 
son City,  Mo.,  but  before  Illinois  had  been  crossed  the 
superiority  of  the  railroad  for  the  carriage  of  long-distance 
traffic  had  been  fully  demonstrated,  and  further  extension 
of  the  National  Pike  was  discontinued. 

Even  before  the  period  of  turnpike  construction  began 
attempts  were  made  to  establish  artificial  waterways  in 
America.  Surveys  of  canal  routes  were  made  in  Pennsyl- 
vania as  early  as  1762.  In  1774,  Washington,  who  years 
before  had  been  deeply  impressed  by  the  need  for  a  through 
transportation  route  between  the  Atlantic  seaboard  and  the 
region  west  of  the  Allegheny  Mountains,  laid  before  the 


16  RAILROAD  TRANSPORTATION 

Virginia  House  of  Burgesses  a  plan  for  establishing  a  great 
highway  between  the  East  and  the  West  by  the  improvement 
of  the  navigation  of  the  Potomac  River  from  tidewater  to 
Fort  Cumberland,  and  the  construction  of  a  road  across 
the  mountains  to  the  nearest  navigable  tributary  of  the 
Ohio  River.  A  bill  was  introduced  by  the  terms  of  which 
individuals  were  permitted  and  authorized  to  subscribe  the 
funds  necessary  to  carry  out  such  a  scheme,  but  before 
an  agreement  could  be  reached  between  Virginia  and  Mary- 
land concerning  the  improvement  of  the  Potomac  River,  the 
Revolutionary  War  broke  out  and  temporarily  put  a  stop  to 
all  plans  for  the  undertaking. 

With  the  return  of  peace  the  agitation  for  the  establish- 
ment of  waterways  was  renewed,  and  a  large  number  of 
notable  improvements  were  planned.  Washington  displayed 
a  deep  interest  in  the  entire  movement  and  especially  in  his 
favorite  project  of  constructing  a  through  route  between 
the  Ohio  Valley  and  the  Atlantic  coast  region,  and  for  a 
few  years  he  was  president  of  the  Potomac  Company,  a 
corporation  chartered  by  Virginia  and  Maryland  for  the 
improvement  of  the  Potomac  River.  While  he  was  in  charge, 
the  enterprise  was  vigorously  prosecuted  and  a  considerable 
portion  of  the  work  of  building  a  canal  around  some  of  the 
falls  in  the  river  was  completed,  but  when  he  resigned  to 
become  President  of  the  United  States  in  1789,  the  project 
was  allowed  to  languish  and  work  was  practically  aban- 
doned. Because  of  a  lack  of  capital  only  a  few  of  the  many 
other  waterways  planned  at  the  time  were  completed,  the 
most  important  being  the  Dismal  Swamp  Canal,  which  was 
built  between  1787  and  1794,  and  the  Middlesex  Canal, 
which  was  finished  in  1804.  However,  with  the  spread  of 
population  westward  from  the  ocean,  the  need  for  better 
transportation  facilities  became  more  and  more  pressing, 
and  it  was  strongly  urged  that  the  Federal  Government 
undertake  the  work  of  supplying  them. 


ORIGIN  OF  THE  AMERICAN  RAILROAD       17 

In  1808  Albert  Gallatin,  the  Secretary  of  Treasury,  made 
an  elaborate  report  to  Congress,  outlining  in  detail  a  plan  for 
the  construction  by  the  United  States  of  a  comprehensive 
system  of  waterways  and  roads  to  extend  throughout  the 
entire  country.  Before  any  action  could  be  taken  on  Galla- 
tin's scheme  the  government  became  involved  in  the  com- 
plications which  led  finally  to  the  second  war  with  England. 
By  temporarily  cutting  off  all  intercourse  with  Europe  and 
by  confining  domestic  trade  almost  entirely  to  inland  routes 
the  war  strongly  emphasized  the  need  of  the  people  of  the 
United  States  for  a  more  adequate  transportation  system; 
and,  when  peace  was  again  restored,  determined  efforts 
were  put  forth  to  secure  a  number  of  important  artificial 
waterways  by  the  construction  of  canals  and  by  the  canal- 
ization of  rivers.  The  National  Government,  under  the 
control  of  the  strict  constructionist  party,  did  not  for  a  time 
assist  in  the  work  of  supplying  "internal  improvements,"  but 
State  governments  and  private  corporations,  aided  by  the 
States,  undertook  the  work,  and  later  the  Federal  Govern- 
ment gave  extensive  aid,  directly  and  indirectly,  to  the  proj- 
ects both  of  States  and  of  private  corporations. 

Of  the  many  schemes  for  waterway  improvements  planned 
and  undertaken  soon  after  the  close  of  the  War  of  1812 
there  were  two  of  especial  prominence,  one  for  the  purpose 
of  connecting  the  anthracite  coal  fields  in  eastern  Pennsyl- 
vania with  tidewater,  and  the  other  for  the  purpose  of 
establishing  through  transportation  routes  between  the  East 
and  the  West.  One  of  the  first  of  the  anthracite  tidewater 
canals  was  the  Schuylkill  Navigation,  which  was  built  along 
the  Schuylkill  River  from  Mount  Carbon  to  Philadelphia, 
and  opened  for  traffic  early  in  1826.  Shortly  afterward 
canals  were  built  along  the  Lackawaxen,  Lehigh  and  Sus- 
quehanna Rivers.  From  the  Delaware  River,  opposite  the 
point  of  entrance  of  the  Lackawaxen  Canal,  the  Delaware 
and  Hudson  Canal  was  built  to  Rondout,  N.  Y.,  on  the 


18  RAILROAD  TRANSPORTATION 

Hudson  River,  and  two  other  lines  of  communication  be- 
tween the  Delaware  River  and  New  York  harbor  were  es- 
tablished by  way  of  the  Morris  Canal  extending  from  a  point 
opposite  Easton,  Pa.,  to  Newark  and  Jersey  City,  and  by 
way  of  the  Delaware  and  Raritan  Canal  from  Bordentown 
to  New  Brunswick,  N.  J.  All  of  these  canals,  with  the 
exception  of  part  of  the  one  along  the  Susquehanna  River, 
were  built  by  private  corporations,  which  in  most  cases, 
however,  were  subsidized  by  the  State  governments.  The 
State  of  Pennsylvania  also  constructed,  as  a  part  of  the  an- 
thracite tidewater  system,  a  canal  along  the  Delaware  River 
from  Easton  to  Bristol. 

The  project  of  establishing  a  through  route  to  the  West 
was  attempted  by  each  of  three  States,  New  York,  Pennsyl- 
vania and  Maryland,  but  only  the  effort  of  New  York  re- 
sulted in  complete  success.  This  State  built  the  Erie  Canal, 
which  was  begun  in  1817  and  opened  in  1825.  For  nearly  a 
half  century  after  its  completion  this  waterway  and  its 
connections  constituted  the  most  important  single  route  of 
trade  between  the  Central  States  and  the  Atlantic  sea- 
board. 

The  immediate  success  of  the  Erie  Canal  roused  Pennsyl- 
vania to  action,  and  in  1826  she  began  her  system  of  "public 
works,"  the  main  feature  of  which  was  a  composite  rail  and 
water  route,  completed  in  1834,  connecting  Philadelphia  with 
Pittsburgh.  A  railroad  ran  from  Philadelphia  to  the  Sus- 
quehanna River  at  Columbia,  thence  a  canal  extended  up  the 
Susquehanna  and  Juniata  Rivers  to  Hollidaysburg.  Be- 
tween Hollidaysburg  and  Johnstown  the  canal  barges  were 
carried  over  the  mountains  by  a  portage  railroad ;  a  canal 
connected  Johnstown  and  Pittsburgh,  at  which  point  junc- 
tion was  made  with  the  Ohio  River  steamboats.  Though 
affording  a  through  route  between  Philadelphia  and  Pitts- 
burgh this  line  proved  to  be  both  inconvenient  to  operate 
and  expensive  to  maintain ;  it  was  never  able  to  compete 


ORIGIN  OF  THE  AMERICAN  RAILROAD       19 

successfully  with  the  Erie  Canal  for  through  traffic,  and 
soon  after  the  completion  of  the  Pennsylvania  Railroad 
most  of  it  was  abandoned. 

Two  years  after  Pennsylvania  started  the  construction 
of  her  public  works,  a  corporation  chartered  by  Virginia 
and  Maryland  as  a  successor  of  the  old  Potomac  Company 
of  which  Washington  had  for  a  time  been  president,  began 
to  build  the  Chesapeake  and  Ohio  Canal  in  the  valley  of  the 
Potomac.  This  canal  was  never  built  farther  than  Cumber- 
land and  it  did  not  reach  there  until  1850. 

In  addition  to  the  waterways  already  described  a  large 
number  of  others  were  constructed.  By  1840  New  York 
and  Pennsylvania  each  had  nearly  1,000  miles  of  artificial 
waterway.  The  transportation  systems  of  canals  and  rail- 
roads in  those  two  States  in  1840  is  shown  by  the  accom- 
panying charts  giving  data  taken  from  Tanner's  maps  of 
that  date.  Several  short  canals  were  built  along  the  Atlantic 
coast  to  connect  some  of  the  larger  indentations  of  the  sea. 
The  most  important  of  these  waterways  was  the  Chesa- 
peake and  Delaware  Canal  which  was  completed  in  1829. 
In  the  Western  States  also,  where  the  people  were  anxious 
to  take  advantage  of  the  new  route  to  the  East  afforded 
by  the  Erie  Canal,  great  interest  was  taken  in  the  con- 
struction of  waterways.  Between  1830  and  1850,  Ohio  and 
Indiana,  aided  by  large  grants  of  land  from  the  Federal 
Government,  built  three  canals  joining  the  Ohio  River  to 
Lake  Erie ;  and  Illinois  built  a  canal  from  Chicago  on  Lake 
Michigan  to  La  Salle  on  the  Illinois  River. 

After  1840  canal  building  fell  off  rapidly.  The  panic  of 
1837  so  crippled  the  financial  resources  of  the  States  that 
they  were  temporarily  left  without  surplus  funds  to  invest 
in  internal  improvements ;  at  the  same  time  the  railroads 
were  being  extended  rapidly  and  were  taking  the  traffic 
that  had  previously  moved  by  water.  The  use  of  rivers 
and   canals   did  not  stop  with   the  spread  of  the   railway 


20  RAILROAD  TRANSPORTATION 

system,  nor  have  the  inland  waterways  yet  ceased  to  be 
serviceable ;  but  at  the  present  time  only  the  large  lakes  and 
rivers  and  the  most  important  canals  are  able  to  hold  their 
traffic  in  competition  with  the  railroads. 

The  railroad  at  the  beginning  was  an  improved  tram- 
way equipped  with  a  track  upon  which  locomotives  could 
be  run.  The  distinctive  feature  of  the  railroad  was  the 
substitution  of  mechanical  for  animal  traction  (the  use 
of  steam  instead  of  muscle  as  the  power  by  which  vehicles 
were  moved),  and,  although  the  first  locomotives  were 
small  and  crude,  their  use  as  an  agent  of  transportation 
marks  one  of  the  greatest  advances  the  world  has  ever 
made.  Mechanical  traction  freed  society  from  the  narrow 
limitations  which  muscular  force  placed  upon  human  de- 
velopment, and  gave  man  possession  of  an  agency  capable 
of  indefinite  improvement. 

The  construction  of  tramways  for  cars  drawn  by  horses 
was  a  comparatively  simple  task,  and,  from  1801  on,  tram- 
way companies  were  frequently  chartered  in  England.  The 
tracks  were  used  mainly  for  hauling  minerals.  The  Quincy 
tramway,  the  first  road  of  its  kind  in  America — built  in 
Massachusetts  in  1826  and  sometimes  wrongly  called  the 
first  railroad  in  America — was  used  to  transport  the  build- 
ing-stone of  which  Bunker  Hill  monument  was  erected.  It 
was  only  three  miles  in  length,  and  extended  from  the 
Quincy  quarries  to  a  wharf  on  the  Neponset  River.  Near 
the  quarry  there  was  a  steep  incline,  up  and  down  which 
the  cars  were  handled  by  a  stationary  engine;  for  the  re- 
mainder of  the  distance  horses  were  used. 

The  rails  used  on  the  tramways  and  on  most  of  the 
early  railroads  of  America  consisted  of  wooden  beams 
with  a  strap  of  iron  nailed  to  the  upper  surface,  the  rails 
being  very  similar  to  those  most  frequently  used  for 
street  railways  until  horse  cars  were  displaced  by  the  heavier 
electric  cars  run  at  a  higher  rate  of  speed. 


ORIGIN  OF  THE  AMERICAN  RAILROAD       21 

The  successful  locomotive  dates  from  1829,  at  which 
time  the  celebrated  English  engineer  Stephenson  brought 
out  the  Rocket.  The  stationary  engine  had  been  introduced 
by  Watt  50  years  before  that  time,  but  it  was  Stephenson 
who  first  incorporated  in  the  engine  the  two  features  essen- 
tial to  a  workable  locomotive.  One  of  these  two  features 
was  the  multitubular  boiler,  by  which  the  heating  surface 


The  Rocket,  1829 

was  greatly  increased.  Stephenson  was  not  the  inventor  of 
this,  but  was  the  first  to  make  practical  use  of  the  inven- 
tion. The  other  feature  was  the  exhaust  draft,  the  device 
whereby  the  exhaust  steam  from  the  cylinder  created  a 
stronger  draft  through  the  firebox  and  the  tubes  of  the 
boiler.  By  combining  these  two  principles  in  the  Rocket, 
Stephenson  became  the  "father  of  the  locomotive."  At 
the  trial  test,  in  October,  1829,  on  the  Liverpool  and  Man- 
chester Railroad,  the  Rocket  attained  a  speed  of  29  miles 
an  hour  and  the  practicability  of  mechanical  traction 
became  a   demonstrated   fact.     The   day  of   doubtful   ex- 


22  RAILROAD  TRANSPORTATION 

periment    was    past,    the    tramway    became    the    railroad. 

The  first  railroad  in  England,  the  line  between  Liver- 
pool and  Manchester,  was  begun  in  1826 — three  years 
before  the  success  of  the  locomotive  was  assured.  At  Mauch 
Chunk,  Pa.,  in  1827,  and  between  Carbondale  and  Hones- 
dale,  in  the  same  State,  in  1826,  two  coal  companies  had 
opened  roads  for  the  transportation  of  their  coal  from  the 
mines  to  their  canals.  These  mountain  roads  were  built 
for  private  use,  and  the  cars  were  operated  by  the  force 
of  gravity  and  by  means  of  stationary  engines.  They  were 
not  railroads  in  the  present  meaning  of  the  term.  The 
pioneer  American  railroad  built  for  general  public  use  was 
the  Baltimore  and  Ohio.  The  company  was  chartered  in 
1827  and  construction  was  begun  in  1828,  but  not  on  a 
large  scale,  there  being  only  13  miles  open  for  traffic  in  1830. 
Five  years  later  the  length  of  the  road  was  135  miles.  The 
first  rail  of  this  historic  road  was  laid  on  July  4,  1828,  by 
Charles  Carroll,  the  only  living  signer  of  the  Declaration  of 
Independence.  As  Professor  Hadley,  writing  in  1885,  stated: 
"One  man's  life  formed  the  connecting  link  between  tb«i 
political  revolution  of  the  last  century  and  the  industrial 
revolution  of  the  present." 

The  construction  of  numerous  other  roads  was  begun 
shortly  after  work  commenced  on  the  Baltimore  and  Ohio. 
A  South  Carolina  road,  the  Charleston  and  Hamburg,  was 
chartered  in  1829,  and  in  1834  it  had  137  miles  in  operation. 
For  a  short  time  it  was  the  longest  line  in  the  world  under 
one  management.  The  parent  company  of  the  New  York 
Central  system,  the  Mohawk  and  Hudson,  was  chartered  as 
early  as  1826,  and  began  construction  in  1830.  The  line 
from  Albany  to  Schenectady,  17  miles,  was  opened  in 
1 83 1.  Five  years  later  Albany  and  Utica  had  been  con- 
nected by  rail.  In  1842  Buffalo  was  reached,  and  by  that 
time  lines  had  been  built  from  New  York  and  Boston  to 
Albany,  so  that  the  East  and  the  West  of  that  period  had 


ORIGIN  OF  THE  AMERICAN  RAILROAD       23 

been  joined  by  easy  communication  by  way  of  the  railroads 
and  the  Great  Lakes. 

Between  1830  and  1835  railroad  building  was  pushed 
more  rapidly  in  Pennsylvania  than  in  any  other  State,  200 
miles  being  opened.  The  first  division  of  the  present  Penn- 
sylvania Railroad  system  was  the  Columbia  Railroad,  by 
which  Philadelphia  was  connected  with  Columbia,  on  the 
Susquehanna  River,  in  1834.  The  road  was  built  by  the 
State,  its  construction  having  been  authorized  in  1828. 
This  railroad  was  a  link  in  the  through  route  above  referred 
to,  consisting  of  canals  and  railroads,  by  which  the  State 
connected  Philadelphia  with  the  Ohio  River  at  Pittsburgh 
in  1834.  The  line  to  connect  Philadelphia  with  New  York, 
the  Camden  and  Amboy,  was  chartered  in  1830  and  com- 
pleted in  1837.  The  road  from  Philadelphia  to  Baltimore,  the 
Philadelphia,  Wilmington  and  Baltimore,  was  chartered  in 
183 1  and  finished  in  1837.  The  Reading  Railroad,  built 
mainly  for  the  transportation  of  coal,  was  chartered  in  1833 
and  opened  for  traffic  five  years  later. 

In  Massachusetts  the  chartering  of  railroad  companies 
began  in  1830,  and  in  1835  three  lines  radiated  from  Boston. 
One  ran  south  to  Providence,  another  north  to  Lowell,  and 
a  third  west  to  Worcester.  This  third  line  reached  Albany 
and  western  connections  just  at  the  close  of  1841. 

Americans  began  to  build  locomotives  in  1830,  or  about 
as  soon  as  they  engaged  in  railroad  building.  The  Eng- 
lish locomotives  were  expensive,  they  could  not  be  secured 
promptly,  and  when  obtained  they  were  not  well  adapted 
to  the  light  rails,  steep  grades,  and  sharp  curves  of  the 
American  tracks.  The  traffic  conditions  caused  the  engines 
and  cars  to  be  built  according  to  designs  different  from 
those  followed  in  Great  Britain,  and  the  differences  in 
equipment  are  quite  as  pronounced  today  as  they  were  at 
the  beginning. 


24  RAILROAD  TRANSPORTATION 


REFERENCES 

Tanner,  H.  S.  A  Description  of  the  Canals  and  Railroads  of 
the  United  States  (1840). 

Hadley,  A.  T.    Railroad  Transportation,  chaps,  i  and  ii  (1885). 

Adams,  Charles  Francis.  Railroads:  Their  Origin  and  Prob- 
lems (1878).  [The  first  third  of  the  book  gives  the  story 
of  the  "Genesis  of  the  Railroad  System.'*] 

Poor,  H.  V.  Manual  of  the  Railroads  of  the  United  States. 
[The  volume  for  1881  contains  a  sketch  of  the  "Rise  and 
Progress  of  Internal  Improvements."] 

Tenth  Census  of  the  United  States.  [Vol.  IV  contains  a  his- 
tory of  the  canals  of  the  United  States.] 

Ringwalt,  J.  L.  Development  of  Transportation  Systems  in 
the  United  States  (1888). 

Jones,  Chester  Lloyd.  The  Economic  History  of  the  Anthra- 
cite-Tidewater Canals   (1908). 


CHAPTER  III 

GROWTH  OF  THE  AMERICAN  RAILROAD  NET 

Growth  in  mileage  by  decades,  26.  Importance  of  the  decade  from 
1850-1860,  26.  Railroad  consolidations,  28.  The  decade,  1860- 
1870,  30.  The  first  transcontinental  lines,  30.  The  panic  of 
i873»  3r-  Construction  from  1880-1890,  31.  Construction  since 
1890,  32.  Comparison  of  American  and  European  railroad  mile- 
age, 33.  Magnitude  of  the  railroad  system  in  the  United  States, 
33.     References,  37. 

The  accompanying  chart  shows  what  the  railway  mile- 
age of  this  country  has  been  at  the  beginning  of  each 
decade  since  the  introduction  of  the  new  means  of  trans- 
portation. In  1830  there  were  but  23  miles  in  use.  During 
the  succeeding  ten  years  the  total  mileage  reached  2,818. 
The  account  just  given  of  the  early  history  of  American 
railroads  shows  that  the  roads  constructed  during  the  first 
ten  years  radiated  from  several  Atlantic  seaports,  Phila- 
delphia being  the  most  important  center  in  1840. 1  New  York 
was  a  larger  city,  but  having  especially  favorable  facilities 
for  water  transportation,  its  railway  connections  were  de- 
veloped somewhat  more  slowly  than  were  those  of  Philadel- 
phia. 

In  the  year  1850  the  length  of  the  railways  in  the  United 
States  reached  9,021  miles.  The  growth  during  the  preced- 
ing ten  years  had  not  been  especially  rapid  outside  of  the 
New  England  States.  The  decade  1840  to  1850  was  not  a 
period  of  rapid  industrial  development.  The  progress  of  the 
country    was    steady,    but    comparatively    slow.      Railroad 

'  Consult  map  of  Pennsylvania's   railroad  net  in  1840. 


26 


RAILROAD  TRANSPORTATION 


Chart  showing  by  decades  the  mileage  of  railway  lines  in  the  United  States 


1830 

23 

1840 

2,818 

1850 

9,02 1 

i860 

30,626 

1870 

52,922 

1880 

93.267 

1890 

163,597 

1900 

193.346 

1910 

240,293 

1918 

253.528 

building  in  the  Southern  States  made  little  headway,  and  in 
the  central  West  only  three  important  lines  were  begun.  In 
New  England,  where  the  country  was  most  thickly  popu- 
lated, the  progress  was  greater,  so  that  by  1850  nearly  all  the 
present  important  trunk  lines  in  that  section  had  been 
completed. 

The  ten  years  following  1850  were  far  more  important  in 
railroad  history  than  were  the  ten  years  previous.  The  in- 
crease between  1850  and  i860  was  from  9,021  to  30,626 
miles.  Several  causes  combined  to  bring  about  this  rapid 
expansion.  Fully  recovered  from  the  financial  and  industrial 
depression  occasioned  by  the  disastrous  panic  of  1837,  the 
United  States  was  enjoying  a  period  of  great  business 
prosperity.  In  the  central  West  the  steady  inflow  of  settlers 
had  brought  about  the  addition  of  thousands  of  acres  to 
the  farm  land  of  the  nation,  and  with  the  great  increase 
in  acreage  and  the  constantly  growing  use  of  farm  ma- 
chinery, the  annual  product  of  agriculture  in  this  section, 
composed  chiefly  of  cereals,  was  enormously  augmented ; 
in  the  South  cotton  cultivation  had  become  the  one  dominat- 
ing industry  and  with  the  multiplication  of  spindles  and 
looms  in  New  England  and  abroad  the  cotton  plantations 
grew  in  number  and  extent  and  the  crop  of  cotton  became 


GROWTH  OF  AMERICAN  RAILROAD  NET    27 

larger  each  year ;  in  New  England  and  the  middle  Atlantic 
States  manufactures  and  commerce  were  assuming  the  posi- 
tion of  leading  importance.  To  care  for  the  expanding 
volume  of  traffic  entering  into  domestic  trade  and  to  insure 
the  permanent  prosperity  of  the  three  economic  sections 
of  the  country  an  adequate  transportation  system  was 
vitally  necessary.  The  railroad  had  fully  demonstrated  its 
superiority  over  the  canal  for  the  speedy  carriage  of  all 
kinds  of  traffic ;  moreover,  railroads  could  be  constructed 
more  cheaply  than  canals  and  could  also  overcome  the 
difficulties  imposed  by  climate  and  elevation.  Consequently 
canal  building  was  practically  discontinued  after  1850  and 
every  energy  was  bent  toward  establishing  rail  connections 
throughout  all  parts  of  the  country. 

Conditions  were  extremely  favorable  for  the  success  of 
railroad  enterprises  from  1850  to  i860.  Encouraged  by  the 
increase  in  the  volume  of  money  resulting  from  the  dis- 
covery of  gold  in  California,  business  activity  in  all  lines 
was  unusually  keen  and  railroad  builders  were  sure  of  a 
large  volume  of  traffic.  On  account  of  an  eagerness  for 
speculation  existing  throughout  the  country  it  was  no  diffi- 
cult matter  to  secure  private  capital  for  the  prosecution  of 
transportation  enterprises.  Then,  too,  construction  of  rail- 
roads in  the  central  West  was  greatly  stimulated  by  grants 
of  land  from  the  public  domain.  In  1850  the  first  large 
grant  was  made,  the  Illinois  Central  Railroad  being  the 
recipient,  and  many  other  gifts  of  land  were  made  during 
the  next  few  years.  The  policy  of  giving  lands  to  aid  in 
railroad  construction  was  followed  by  the  United  States 
for  nearly  thirty  years,  and  it  caused  some  of  the  lines 
in  the  Central  and  far  Western  States  to  be  built  earlier 
and  more  rapidly  than  they  otherwise  would  have  been. 
The  individual  States  and  many  local  governments  also 
made  large  contributions  of  public  funds  to  induce  corpora- 
tions to  construct  railways.     The  history  and   results  of 


28  RAILROAD  TRANSPORTATION 

government  aid  to  railroads  are  given  in  Chapter  XXVII. 

During  the  decade  following  1850  many  of  the  trunk  lines 
of  the  large  railway  systems  were  completed.  The  Erie 
Railroad  joined  New  York  to  Dunkirk  on  Lake  Erie  in 
1 85 1,  and  the  same  year  connection  between  New  York 
and  Buffalo  by  way  of  Albany  was  established  by  the  com- 
pletion of  the  last  of  the  chain  of  roads  which  were  sub- 
sequently consolidated  into  the  New  York  Central  and 
Hudson  River  Railroad.  The  Baltimore  and  Ohio,  the  first 
railroad  of  the  United  States,  reached  the  Ohio  River,  also, 
in  185 1,  and  the  following  year  a  through  rail  route  was 
completed  between  Philadelphia  and  Pittsburgh.  In  the 
South,  also,  trunk  lines  from  the  ports  of  Charleston  and 
Savannah  were  extended  as  far  west  as  Tennessee.  All  of 
these  lines,  and  especially  those  in  the  North,  made  connec- 
tions with  new  railway  systems  spreading  through  the  Cen- 
tral States.  By  1853  it  was  possible  to  travel  from  the  At- 
lantic seaboard  to  Chicago  by  rail.  In  the  following  year  the 
Chicago  and  Rock  Island  Railroad  connected  Chicago  with 
the  Mississippi  River.  Land  grants,  State  subsidies  and 
prosperous  times  combined  to  foster  the  rapid  spread  of  the 
railway  net  in  the  middle  West,  and  it  was  in  that  region 
that  the  greatest  part  of  the  construction  of  this  decade 
took  place,  though  both  in  the  South  and  in  the  Atlantic 
coast  section  south  of  New  England  a  large  amount  of  new 
track  was  laid  down.  The  period  of  expansion  lasted  until 
J857,  when  the  good  times  were  interrupted  by  a  sharp  finan- 
cial panic,  which  so  seriously  interrupted  railroad  building 
that  it  had  not  regained  its  previous  activity  when  the 
great  Civil  War  broke  out  and  put  another  check  upon  in- 
dustrial progress  for  half  a  decade. 

One  of  the  most  notable  features  of  railway  progress 
during  the  decade  from  1850  to  i860  was  the  beginning  of 
the  process  of  welding  together  numbers  of  short  connecting 
railroads  into  long  lines  under  a  single  ownership.     The 


THE  LIBRARY 

OF  THE 

UNIVERSITY  Or  ILLINOIS 


Map  of  the  Railroads  in  the  United  States  in  18G0 


THE  LIBRARY 

OF  THE 

UNIVERSITY  Or  iLLi^iS 


THE  LIBRARY 
OF  THE 
UNIVERSITY  Of  ILLINOIS 


THE  LIBRARY 
OF  THE 
UNIVERSITY  Of  ILLINOIS 


f  HE  UBRMW 


THE  LI8RARV 

Of  THE 

UNIVCfiSITV  or  KitNOlS 


*^*-;&S£ 


Map  of  the  Railroads  in 


United  States  in  1921 


THE  LIBRARY 

OF  THE 

UNIVERSITY  Or"  ILLINOIS 


GROWTH  OF  AMERICAN  RAILROAD  NET     29 

early  roads  were  short,  largely  because  the  corporations  of 
the  fourth  and  fifth  decades  of  the  last  century  could  not 
command  the  capital  needed  to  build  long  roads  or  large 
systems.  No  enterprise  now  seems  too  great  for  a  private 
corporation,  but  previous  to  1850  that  was  not  so.  Some  of 
the  short  roads  were  built  with  reference  to  their  being  a 
part  of  a  through  or  general  system,  but  many  were  con- 
structed rather  to  connect  local  points.  The  necessity  for 
providing  facilities  for  uninterrupted  travel  and  shipment 
became  so  imperative  that  railway  consolidations  were  found 
to  be  necessary. 

The  New  York  Central  Railroad  and  the  Pennsylvania 
Railroad  are  good  examples  of  these  consolidations.  In 
1850  there  were  no  less  than  ten  distinct  companies  owning 
and  operating  the  railroads  composing  the  line  connecting 
Albany  and  Buffalo,  but  by  1853  these  roads  were  united 
under  one  management.  In  1867  Commodore  Vanderbilt 
secured  a  controlling  interest  in  this  line  and  in  1869  he 
brought  about  its  consolidation  with  the  Hudson  River  Rail- 
road which  he  had  acquired  a  few  years  previously.  Mean- 
while, several  important  branch  lines  had  been  added  to  the 
property,  connecting  lines  west  of  Buffalo  were  soon  leased, 
and  thus  the  powerful  New  York  Central  system  was  built 
up. 

The  Pennsylvania  Railroad  Company  was  chartered  in 
1846  to  construct  a  line  from  Harrisburg  to  Pittsburgh.  The 
company  secured  control  of  the  road  between  Harrisburg 
and  Lancaster  in  1849,  ar>d  when  in  1857  it  bought  up  the 
main  line  of  the  public  works  of  Pennsylvania,  including 
the  railroad  extending  from  Philadelphia  to  Columbia  by 
way  of  Lancaster,  it  came  into  possession  of  a  continuous 
line  of  railway  from  Philadelphia  to  Pittsburgh.  By  build- 
ing new  lines  and  absorbing  other  companies  the  system  was 
gradually  extended  through  all  parts  of  the  rich  territory 
lying  between  New  York,  Philadelphia  and  Washington  on 


30  RAILROAD  TRANSPORTATION 

one  side  and  Chicago  and  St.  Louis  on  the  other.  At  the 
present  time  this  great  system  comprises  properties  for- 
merly owned  by  more  than  200  companies,  in  addition  to  the 
extensive  mileage  constructed  by  the  original  corporation. 

During  the  decade  18601870  the  mileage  of  railways  in 
the  United  States  increased  from  30,626  to  52,922.  While 
the  Civil  War  was  in  progress  the  amount  of  construction 
was  necessarily  small,  but  as  soon  as  peace  was  restored, 
railroad  building,  in  common  with  nearly  all  other  lines 
of  business,  became  unusually  active.  After  1866  construc- 
tion proceeded  at  an  unprecedented  rate.  The  increase  in 
1869,  amounting  to  4,615  miles,  was  greater  than  the  in- 
crease of  any  single  previous  year;  and  in  1870  the  new 
track  laid  down  amounted  to  6,078  miles. 

The  most  important  single  feature  of  the  railroad  history 
of  the  period  was  the  completion  in  1869  of  the  first  trans- 
continental line.  From  Omaha  to  Ogden  this  line  was  built 
by  the  Union  Pacific  Railroad  Company,  which  was  char- 
tered by  Congress  in  1862  and  rechartered  in  1864,  while 
the  Central  Pacific  Railroad  Company,  a  California  corpora- 
tion, constructed  that  part  of  the  road  lying  between  Ogden 
and  Sacramento.  The  route  of  this  line  is  shown  in  the  map 
of  the  railroads  for  1870.  The  United  States  Government, 
desirous  of  having  railroad  connection  established  between 
California  and  the  northern  States  of  the  East,  gave  great 
quantities  of  land  and  loaned  large  sums  of  money  to  the 
corporations  undertaking  this  enterprise. 

To  other  companies  also,  which  engaged  in  the  work  of 
building  railways  across  the  dry  plains  and  high  mountains 
toward  the  Pacific  coast,  the  Federal  Government  made 
liberal  gifts  of  land;  and  those  companies  which  did  Trot- 
receive  Federal  aid  were  freely  subsidized  by  the  States. 
Within  a  short  time  a  number  of  transcontinental  lines 
were  under  way,  and  though  construction  work  was  checked 
by  the  panic  of  1873,  the  roads  were  ultimately  pushed 


GROWTH  OF  AMERICAN  RAILROAD  NET    31 

through  to  the  ocean.  The  Atchison.  Topeka  and  Sante  Fe 
reached  Deming,  N.  M.,  in  1881,  there  connecting  with 
the  Southern  Pacific  line  to  San  Francisco.  In  1883  the 
Northern  Pacific  was  completed  and  the  same  year  the 
Southern  Pacific  opened  a  line  from  New  Orleans  to  the 
western  coast.  Since  then  additional  lines  have,  hrrn  nrlrlrrf,- 
until  there  are  now  within  the  United  States  no  less  than 


* 


spvpn  distinct  transcontinental  railway  systems.    Three  preat. 
irnes  stistek-  f  1  uni  uo^aiL  to  ocean  in  Canada  and  another. 


transcontinental_rni]tp  k  being  established  by  the  construe-^ 
tion  ofa  road  between  the  Missouri  River  and  the  Mexican 


coast. 

ipdof  rapid,  raikoad^huilding  which  began  in 
1867  lasted  untTTTS^^he  rajlway_"pt  ^f  the,  United  States 
being  increased  by  3 3, 000  miles  during^  thg^sgyrTT-ypars,  - 
Unfortunately,  however,  many  o(  the  new  railways  antic- 
ipated the  needs  of  their  time.  Unable  to  secure  traffic 
these  roads  afforded  no  return  on  the  large  investments 
which  they  represented,  and  their  securities  became  almost 
worthless.  The  financial  and  industrial  crisis  of  1873  was 
largely  due  to  the  too  rapid  building  of  railways  and  to  the 
overcapitalization  of  most  of  the  new  lines.  Indeed  the 
panic  was  precipitated  by  the  failure  of  the  Jay  Cooke 
banking  house  of  Philadelphia,  which  had  underwritten  a 
large  issue  of  Northern  Pacific  bonds.  The  depression 
which  ensued  was  severe  and  protracted,  and  during  the 
five  years  following  1873  less  than  10,000  miles  of  railway 
were  constructed.  By  1880,  however,  the  country  had  re- 
covered from  the  results  of  the  panic,  and  the  growth 
of  the  railway  net  again  began  to  proceed  at  a  rapid  rate. 
_  Vl*i  1880  there  were  93,267  miles  of  railroad  in  the  United 
States.  In  1890  there  were  163,597 ;  70,000  miles  of  railroad 
were  built  in  this  country  in  a  single  decade.  This  marvel- 
ous achievement  is  unparalleled  in  the  economic  history  of 
any  other  country  of  the  world.    Within  ten  years  the  people 


32  RAILROAD  TRANSPORTATION 

of  the  United  States  built  as  many  miles  of  railroad  as  the 
people  of  the  three  leading  countries  of  Europe  had  con- 
structed injo  years.  The  building  operations  were  carried 
on  in  all  sections  of  the  country,  but  the  largest  increases 
were  made  in  the  States  of  the  central  and  western  por- 
tions of  the  country,  where  settlers  were  rapidly  taking 
possession  of  the  unoccupied  agricultural  and  grazing  sec- 
tions of  the  vast  public  domain,  and  where  the  mineral 
wealth  of  the  Cordilleras  was  causing  cities  and  States  to 
be  established  on  the  great  Rocky  Mountain  plateau.  Capi- 
talists, confident  of  the  growth  of  the  country,  and  assisted 
by  generous  aid  from  the  United  States  and  from  the  local 
governments  and  individuals  of  the  sections  to  be  served, 
constructed  railroads  for  the  purpose  of  creating  the  traffic 
upon  which  the  earnings  of  the  roads  must  depend.  In  many 
cases  the  railroads  built  during  the  20  years  following  the 
Civil  War  were  pioneers  entering  unsettled  regions  beyond 
the  Mississippi  and  Missouri  Rivers  and  opening  the  high- 
ways by  which  immigration  was  able  rapidly  to  occupy  thf 
prairies  and  mountain  valleys  of  the  great  West. 

After  1890  there  were  no  spectacular  increases  in  the 
railway  mileage  of  the  United  States  comparable  to  the 
increase  occurring  during  the  preceding  10  years.  It  seems 
that  by  1890  the  most  urgent  needs  for  railways  had  been 
met,  that  the  country  had  been  so  well  covered  by  the 
railroad  net  that  only  minor  extensions  were  necessary. 
Moreover,  the  financial  depression  which  began  in  1893  and 
lasted  for  nearly  five  years  compelled  the  railway  com- 
panies to  practice  rigid  economies  and  caused  them  to  extend 
their  systems  slowly.  During  the  five  years  from  1894  to 
1898  inclusive  the  animal  construction  averaged  less  than 
2,000  miles,  the  yearly  increase  being  only  a  little  more 
than  1  per  cent,  and  the  entire  construction  between  1890 
and  1900  amounted  to  less  than  30,000  miles.  With  the 
return  of  prosperous  times  in  1898  the  rate  of  increase  rose 


GROWTH  OF  AMERICAN  RAILROAD  NET  33 

again  and  for  the  next  12  years  about  5,000  miles,  or  more 
than  2  per  cent,  were  added  each  year  to  the  railroad  net  of 
the  United  States.  From  1910  to  1913  the  average  annual 
construction  was  slightly  in  excess  of  3,000  miles.  With 
the  coming  of  the  World  War  in  1914  railway  building 
abruptly  declined,  and  kept  on  declining  until  in  1920  only 
314  miles  of  new  line  were  completed  in  the  United  States. 
In  fact  during  the  four  years  following  1916  there  was  a 
greater  mileage  of  old  line  abandoned  in  this  country  than 
of  new  line  constructed,  so  that  the  railway  net  at  the  be- 
ginning of  1921  was  actually  less  extensive  than  it  had  been 
five  years  before. 

The  railway  mileage  of  Europe,  the  United  States,  and  the  world  in  IQ14 


Europe 

United  States. . 
The  World 


218,000 


252,000 


691,000 


The  railway  system  of  the  United  States  now  comprises 
over  253,000  miles  of  line.  In  1914,  before  the  World  War 
began,  when  there  were  252,000  miles  in  the  United  States, 
the  railway  lines  of  the  entire  world  were  691,000  miles 
long.  More  than  one-third  of  the  railway  mileage  of  the 
world  was  in  the  United  States.  The  mileage  in  the  United 
States  exceeded  that  in  all  Europe  by  more  than  15  per  cent. 

The  magnitude  of  the  railway  system  of  the  United  States 
is  only  partially  indicated  by  the  figures  as  to  mileage.  The 
par  value  of  the  capital  stock  and  the  bonds  comprising  the 
capitalization  of  the  railroads  in  this  country  amounted  on 
December  31,  1918,  to  $20,784,832,841.  Not  all  of  these 
securities  possessed  a  selling  value ;  and  it  is  not  possible  to 
say  just  how  much  capital  was  invested  in  the  railroads  of 


34 


RAILROAD  TRANSPORTATION 


the  country  at  that  time.    The  yearly  rental  paid  to  railroad 
corporations  by  the  Government,  during  the  period  of  gov- 


rffST'Ch 


•V 


The  Pennsylvania 


Canals  $llail-itoads 


T.  BORB1DGE &  Cos. 

Transportation  and  Commission 


i 

CANAL  BASIN,  COLUMBIA. 

Their  arrangement  are  sacb.  that  Che*  can  at  all  times  daring-  the  BasMKM  Seaaa%, 
forward  Goods.  Produce,  and  Merchandize,  to  and  from  Philadelphia   I'iMsbore.  \\  iularoy- 
port.  Wilksbarre.  and  all  intermediate  places  on  the  PenopylTnnia  Canals  and  Kail  lteud» 
with  promptness  and  despatch. 

ALL  KINDS  OP 


Received  and  Sold  on  Commission,  and  liberal  adtancefmadt  if  rtqvirtd, 

a  .-■  •  w       m 

.CONSTANTLY  ON  UAND  LARCE  SUPPLIES  OF 

ANTHRACITE  AND  BITUMINOUS  COAL, 


ALSO. 


ILL  OP  WHICH  TRET  WILL  SELL  LOW  JJQR  CifiH  OR  CQCNTBY  PRODCCE.. 


ttaaaa.laaaarCkaqklk.liMkl,  IOh  , 

Ml 

An  Advertisement  Illustrating  the  Transportation  Service 

in  1835 

ernment  operations,  from  December  28,  1918,  to  March  1, 
1920,  was  $918,000,000.  This  sum,  capitalized  at  6  per 
cent,  would  give  to  the  roads  which  the  Government  oper- 


GROWTH  OF  AMERICAN  RAILROAD  NET  35 

ated  a  value  of  $15,300,000,000,  which  is  considerably  less 
than  the  par  value  of  their  outstanding  securities. 

In  1913  Congress  enacted  a  law  directing  the  Interstate 
Commerce  Commission  to  undertake  the  valuation  of  all 
the  railroads  of  the  United  States.  Before  sufficient  time 
had  elapsed  for  the  completion  of  the  valuation,  the  Trans- 
portation Act  was  passed,  February  28,  1920,  under  the 
terms  of  which  the  Commission  was  required  to  establish 
a  level  of  rates  which  would  yield  to  the  carriers,  as  nearly 
as  possible,  a  net  operating  income  of  $l/2  per  cent  (or  at 
the  discretion  of  the  Commission  of  6  per  cent)  of  the 
value  of  the  carriers'  property  devoted  to  transportation. 
In  reaching  a  decision  as  to  what  the  level  of  rates  should 
be  to  yield  a  net  operating  income  of  6  per  cent  the  Com- 
mission set  a  value  of  $18,900,000,000  upon  all  the  rail- 
roads. This  was  some  two  billion  dollars  less  than  the  val- 
uation which  the  representatives  of  the  railroads  asked  the 
Commission  to  adopt.  When  the  appraisal  of  the  railroads, 
provided  for  in  191 3,  is  completed,  we  shall  have  a  valua- 
tion based  upon  an  actual  inventory.  Even  then,  however, 
because  of  differences  of  opinion  as  to  what  principles 
should  govern  the  Commission  in  establishing  final  money 
values  of  physical  assets,  the  valuation  arrived  at  will  by 
no  means  be  satisfactory  to  all  parties. 

Using  the  estimate  of  $18,900,000,000  as  the  amount  of 
capital  invested  in  railways  of  the  country,  it  is  interesting 
to  make  comparisons  with  other  industries.  The  capital 
stock  and  surplus  of  the  7,762  national  banks  of  the  United 
States  in  191 9  amounted  to  $1,984,964,000 — about  one- 
tenth  the  probable  value  of  the  American  railroads.  The 
total  capital  and  surplus  funds  of  all  banks,  national,  State 
and  private,  and  of  the  loan  and  trust  companies  in  the 
United  States  in  19 19  amounted  to  $5,000,000.000 — 
about  one-fourth  the  value  of  the  railroads.     The  amount 


36 


RAILROAD  TRANSPORTATION 


of  capital  invested  in  railroads  is  little  less  than  that 
invested  in  all  the  manufacturing  industries  of  the 
country.  The  census  of  manufacturers  in  1914  showed  a 
reported  capital  investment  of  $22,547,574,000;  while  the 


HI  BAm  lEDAlD  ifiAOiS  a«J)  vfi^iUl  *^<eiK2»rs» 

From  Philadelphia  to  Pittsburgh, 

THROUGH  IN  31  DAYS: 

«*V»  Bl'SrC.1.1  BOATS,  C1RBYI.YG  THE  CJTiTEO  STATES'  .%£fX. 

from  PITTSBURGH  to  LOUVVILLE. 


Starts  every  morning,  from  the  corner  of  Broad  &  Race  .St. 

Ja  laigr  anil  splcnjij  ei»hl  whorl  cars,  via  the  t,nncatter  nml  tl-irrnhurp  Rati  Rottih.  (Trinity! HI   the  latter  place,  at  4  o'clock,  in  the  nlicrnoon.  «hera 

p.isseiijjir*  vrj)  (ilk*  the  Pjckrl*.  winch  bare  nil  ta*n  lilted  up  in  n  very  siipmor  mumier,  having  been  buttt  eiprculyfor  ttit  orrQJumotforujm 

-of  Fauengm,  uAer  the  most  approved  mmJrK  of  Boats  iued  on  ih<  Eiie  Canal,  and  are  ool  surpassed  by  the 

fjoats  used  upon  ony  oilier  Line. 

The   Goals   arc   commanded  by  old   an,l  experienced    Captains,   mml  oT  whom  h»*e  been   connected  wiih  the   Line  tor  the  two  Usi  •  seoona. 
For  spc.-d  imilcomfnri.  ihn  Lint  is  not  excelled  by  any  "liter  in  the  United  Sines. 

Passengers    for  Cincinnati,  Louisville,  Natchez,   Nashville,  St.  Louis,  &c. 

*  ill  olwajs  be  certain  of  being  token  on  without  delay,  as  this  Line  connects  with  the  Ro»t»  ot  Pittsburgh,  carrying  ihr  Ma  J 


OFFICE,  N.  E.  CORNER  OF  FOJJRTH  AND  CHESNUT  ST. 

r.rr  se;ii*  jppty,»>  nt.ovc    .-mdot   No.  2ml   Market  Street;  »i  ihe  White  Swan  Hotel.  Race  Street ;   at  the  N.  E.   Comer  of  Third  and  *ulow  Street* 
Mo.  31  Sooth  Thml  Street;  I  pi   ihc  Wrjl  Chester  Hmise,  Broad  Street 

r-li,i(inri|tl....       »,.-:i     ihJ) 

.  I    It    (  I  • .  W.  mj\'GS.  AsaO. 

An  Advertisement  Showing  What  the  Transportation  Service 

Was  in  1837 


GROWTH  OF  AMERICAN  RAILROAD  NET  37 

value  of  farms  and  farm  property  in  the  United  States  on 
April  15,  1910,  was  placed  at  $40,991,000,000.  The  total 
wealth  of  the  United  States  in  191 2  was  estimated  to  be 
$187,739,000,000,  to  which  railways  and  their  equipment 
contributed  $16,149,000,000.  Although  it  now  costs  but  a 
small  fraction  of  what  it  once  did  to  transport  persons  and 
commodities  a  given  distance,  the  amount  of  travel  and 
traffic  has  so  enormously  increased,  the  demand  for  the 
service  is  now  so  many  times  what  it  was  before  the  days 
of  the  railroad  and  other  economical  agencies  for  transpor- 
tation, that  the  capital  employed  in  transportation  is  far 
greater  than  in  the  days  of  the  stagecoach  and  the  towboat. 
The  cheaper  the  service,  the  greater  its  magnitude  and  the 
larger  the  amount  of  capital  devoted  to  the  performance 
of  the  service. 

REFERENCES 

S  crib  tier's  Statistical  Atlas  of  the  United  States,  plates  15-17 

and  p.  cvii   (1883). 
Hadley,  A.  T.    Railroad  Transportation  (1885). 
Philips,  U.  B.     A  History  of  Transportation  in  the  Eastern 

Cotton  Belt  to  i860  (1908). 
Statistical  Abstract  of  the  United  States  (annual). 


CHAPTER  IV 

THE  MECHANISM  OF  THE  RAILROAD-DEVELOP- 
MENT OF  TRACK  AND  LOCOMOTIVE 

Early  track  construction,  39.  Development  of  the  railroad  rail,  39. 
Ties  and  ballast,  44.  Early  locomotives,  45.  Later  types  of 
Locomotives,  51.  Classification  of  locomotives,  57.  Recent  im- 
provements in  locomotives,  58. 

Although  this  book  is  concerned  with  the  transportation 
service,  with  transportation  economics,  rather  than  with 
the  technical  or  engineering  phases  of  the  subject,  a  brief 


Track  with  Wooden  Stringers,  Surfaced  with  Straps  of  Iron 

account  of  the  growth  and  present  efficiency  of  the  mechan- 
ism by  which  the  service  is  now  performed  will  aid  in  the 
presentation  of  the  subjects  considered  in  this  volume.  The 
essential  parts  of  the  railway  machine  are  three  in  number : 
the  track,  the  locomotive,  and  the  car.    Each  had  crude  be- 

38 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT       39 

ginnings  and  each  has  reached  its  present  condition  of  ex- 
cellence by  a  long  series  of  improvements.  A  few  only  of 
the  most  important  of  these  improvements  need  be  con- 
sidered. 

At  the  beginning  of  railroad  construction,  tracks  of  vari- 
ous designs  were  built,  the  chief  thought  of  the  builders  be- 
ing to  secure  a  solid  structure  that  would  not  permit  the  rails 


Track  of  Granite  Sills  Plated  with  Straps  of  Iron 


to  spread.  In  relation  to  the  weight  of  the  rolling  stock 
and  volume  of  traffic  the  track  was  comparatively  heavy 
and  expensive.  This  was  particularly  true  in  England  and 
on  some  American  railroads  begun  before  1835,  up  to  which 
time  American  practice  was  more  influenced  by  British 
methods  than  it  was  during  subsequent  years. 

Three  kinds  of  rails  were  used,  the  one  most  employed 
consisting  of  strong  wooden  beams,  surfaced  with  strap 
iron.  On  the  South  Carolina  Railroad  the  timber  rails 
had  a  cross  section  measuring  6  by  12  inches,  and  the 
strap  iron  was  2^/2  inches  wide  and  J<£  inch  thick.  It  was  no 
uncommon  thing  for  the  iron  straps  on  this  type  of  rail  to 
work  loose,  and  curving  upward  under  the  weight  of  moving 
trains,  form  "snakeheads,"  which,  when  the  wheels  passed 


40  RAILROAD  TRANSPORTATION 

under  them,  would  penetrate  the  floors  of  cars,  occasionally 
causing  severe  injuries  to  passengers.  The  danger  involved 
in  the  use  of  such  rails  as  well  as  their  lightness  caused  the 
gradual  substitution  of  rails  made  entirely  of  iron,  all  the 
early  forms  of  which,  to  distinguish  them  from  the  "plate 
rails"  were  known  as  "edge  rails."  The  most  common 
form  of  the  early  edge  rails  used  in  this  country  was  that 
known  as  the  "parallel"  rail,  consisting  of  a  heavy  bar  of 
iron  having  the  same  form  of  cross  section  throughout  its 
length,  with  the  top  and  base  of  about  the  same  width  and 


Track  op  Cast  Iron  Rails  Resting  on  Granite  Blocks 

the  sides  slightly  concave.  Another  form,  shown  in  the 
illustration  on  this  page,  had  no  base  and  was  deeper  in  the 
.center  than  at  the  ends.  All  such  rails  were  supported  in 
iron  pedestals  or  chairs  placed  upon  blocks  of  stone  or  wood, 
and  the  track  gauge  was  maintained  by  the  use  of  crossties 
placed  at  intervals  of  6  to  15  feet.  The  first  edge  rails  were 
made  of  cast  iron  and  for  this  reason  their  length  seldom 
exceeded  3^2  feet.  Rolled-iron  rails  came  into  use  in  the 
United  States  about  1832,  the  first  ones  being  about  15  feet 
long  and  weighing  40  pounds  to  the  yard.  Until  1844  all 
the  rolled-iron  rails  used  in  the  United  States  were  im- 
ported from  Great  Britain,  but  in  that  year  a  rail  mill  was 
established  in  Allegany  County,  Md.,  and  in  the  following 
year,  another  at  Danville,  Pa.    From  that  time  the  number 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      41 

of  factories  producing  rolled-iron  rails  grew  very  rapidly 
and  an  increasing  proportion  of  the  rails  used  came  from 
domestic  mills. 

The  roadbed  of  the  Columbia  Railroad  from  Philadelphia 
to  the  Susquehanna  River,  constructed  by  the  State  of  Penn- 
sylvania between  1828  and  1834,  illustrates  in  an  excellent 
way  the  various  types  of  construction  followed  in  the 
early  days  of  railroad  building.  This  was  a  double  track 
road  81.6  miles  in  length,  the  entire  length  of  single  track 


Rolled-Iron  U-Rail,  1844 


being  163.2  miles,  exclusive  of  sidings.  For  six  miles 
of  this  distance  the  rails  consisted  of  granite  sills  plated 
with  flat  iron  bars.  Eighteen  miles  of  track  had  rails  con- 
sisting of  wooden  string-pieces  plated  with  thin  bars  of 
iron.  These  wooden  string-pieces  were  laid  upon  wooden 
crossties  placed  four  feet  apart  upon  a  secure  foundation 
of  broken  stone.  On  two  miles  of  the  track  rails  made 
of  iron  were  supported  upon  stone  blocks,  precaution 
being  taken  against  spreading  of  the  rails  by  placing  stone 
sills  across  the  track  at  intervals  of  15  feet.  The  remainder 
of  the  track  was  constructed  with  edge  rails  supported  in 
cast  iron  chairs  of  15  pounds  weight,  which  in  turn  rested 
upon  stone  blocks  and  wooden  cross-sills  placed  alternately 
at  distances  of  three  feet.     Throughout  the  entire  length 


42  RAILROAD  TRANSPORTATION 

the  space  between  the  rails  was  filled  in  with  gravel  or  broken 
stone  to  form  a  horse  path. 

The  roads  constructed  in  this  manner  were  needlessly- 
expensive,  and  because  of  their  rigidity  were  more  destruc- 
tive to  rolling-stock  than  the  railroad  tracks  are  at  the 
present  time.  American  builders  soon  adopted  the  kind  of 
track  with  which  we  are  now  familiar,  the  rails  being 
placed  upon  wooden  crossties  resting  either  directly  upon  an 
earth  foundation  or  upon  a  thin  ballast  of  gravel  or  broken 
rock. 

Builders  tended  early  to  substitute  iron  for  wooden 
rails,  but  as  late  as  i860  there  were  several  railroads  in  the 
United  States,  particularly  in  the  Southern  States,  still  hav- 
ing wooden  rails  surfaced  with  thin  plates  of  iron.  One  of 
the  early  improvements  of  the  edge  rail  was  a  rail  rolled  in 
the  shape  of  an  inverted  U.  This  type  of  rail  was  never 
used  extensively,  however.  The  T-rail  now  universally  em- 
ployed was  first  designed  about  1830,  and  by  1840  it  was 
in  use  on  several  American  railways.  The  first  rails  of 
this  type  were  about  16  feet  long  and  weighed  36  pounds 
to  the  yard.  Both  the  U-rail  and  the  T-rail  could  be  spiked 
directly  to  wooden  crossties  and  the  use  of  the  cast-iron 
pedestals  or  chairs  was  dispensed  with. 

The  greatest  improvement  in  rails  came  with  the  substitu- 
tion of  steel  for  iron  in  their  construction.  The  first  steel 
rails  used  in  this  country  were  imported  from  England  by 
the  Pennsylvania  Railroad  Company  in  1863.  Though  the 
steel  rails  possessed  a  vastly  greater  durability  than  the  iron 
rails,  their  excessive  cost  for  a  time  prevented  their  general 
adoption.  By  1870,  however,  the  cost  of  rolled  steel  had  be- 
come much  lower  and  after  that  year  the  quantity  of  steel 
rails  used  multiplied  with  great  rapidity.  Not  only  were  the 
new  railroads  equipped  with  steel  rails,  but  on  most  of  the 
older  roads  iron  rails  were  replaced  with  steel.  One-fourth 
of  the  mileage  of  railway  track  in  the  United  States  in  188c 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT       43 

was  laid  with  steel  rails,  and  by  1910  the  proportion  had 
increased  to  more  than  98  per  cent.     Iron  rails  are  now  no 
longer  made  in  this  country.    The  manufacture  of  steel  rails 
in  the  United   States  began  in    1865,  and  since  then  the 
industry  has  expanded  until  it  now  occupies  a  position  of 
high  rank  among  the  manufacturing  industries  of  the  nation, 
the  output  increasing  from  2,277  tons  m  l8^7  to  a  maximum 
of  3,977,887  tons  in  1906.    In  19 13  the  production  amounted 
to  3,502,780  tons.    It  fell  in  1914  to  1,945,095  tons,  but  un- 
der the   influence   of  the  war  demand  both   at  home   and 
abroad,  rose  again,  maintaining  an  average  of  2,500,000  tons 
a  year  down  to  1921.    Until  1897  the  steel  employed  in  the 
manufacture  of  rails  was  made  almost  universally  by  the 
Bessemer  process,   but   at   the   present   time   nearly   three- 
fourths  of  the  rails  annually  manufactured  are  rolled  from 
open-hearth   steel,   and   a   small   but   growing  number   are 
rolled  from  steel  made  in  electric  furnaces.     Attempts  have 
been  made  in  recent  years  to  improve  the  texture  of  the 
steel  used  in  rail  manufacture  by  the  addition  of  certain 
alloys,  notably  titanium,  manganese,  copper  and  nickel,  but 
the  alloy  treated  rails  have  not  proved  to  be  especially  pop- 
ular, and  their  production  has  not  been  large. 

With  the  improvement  of  the  design  of  the  rail  and  of  the 
material  employed  in  its  manufacture  the  weight  of  the  rail 
has  been  steadily  increased  until  at  the  present  time  the  new 
rails  being  laid  weigh  from  85  to  150  pounds  to  the  yard. 
One  hundred  pounds  to  the  yard  has  become  the  standard 
upon  most  tracks  where  traffic  is  heaviest.  For  some  time 
past  the  standard  length  of  rail  has  been  33  feet,  but  at  the 
present  time  some  track  is  being  laid  with  rails  60  feet  in 
length.  A  rail  60  feet  in  length  weighing  100  pounds  to  the 
yard  weighs  exactly  one  ton.  The  use  of  these  heavy  rails 
has  been  made  necessary  by  the  increased  weight  of  en- 
gines and  cars  and  by  the  increase  in  speed  of  passenger 
trains  and   freight  traffic.     Along  with  the  improvements 


44  RAILROAD  TRANSPORTATION 

in  the  track,  the  bridges  and  other  structures  have  been 
strengthened  to  meet  the  necessities  of  modern  transporta- 
tion methods,  so  that  in  spite  of  the  greater  cheapness  of 
material  as  compared  with  the  early  days  of  railway  build- 
ing, the  roadbed  of  today  is  much  more  expensive  than  was 
that  of  50  years  ago.  With  few  exceptions,  the  early  roads 
had  but  a  single  track,  and,  indeed,  today  those  having  a 
relatively  small  volume  of  traffic  have  only  one  track.  As 
the  business  over  a  line  increases  a  second  track  usually 
becomes  necessary,  and  some  roads  find  difficulty  in  han- 
dling their  business  even  with  four-track  lines. 

With  the  adoption  of  the  T-rail  the  use  of  granite  blocks 
and  wooden  sills  to  support  the  rails  was  discontinued,  and 
in  their  place  the  wooden  sleeper  or  crosstie  was  employed. 
On  account  of  its  great  durability  and  because  it  holds 
spikes  more  firmly  than  other  kinds  of  wood,  oak,  and  par- 
ticularly white  oak,  has  been  used  most  extensively  as 
timber  for  crossties,  though  pine,  fir,  cedar,  chestnut,  cy- 
press, tamarack,  hemlock  and  other  woods  are  also  em- 
ployed. The  steady  and  rapid  depletion  of  the  hardwood 
forests  of  the  United  States  has  caused  a  great  advance 
in  the  price  of  crossties  in  recent  years,  and  railroads  have 
attempted  to  meet  the  problem  of  increased  maintenance 
costs  by  using  other  material  than  wood  for  crossties  and 
by  treating  the  cheaper  soft-wood  ties  with  some  preserva- 
tive si  T>stance  which  will  give  them  a  greater  degree  of 
durability.  Attempts  to  introduce  steel  ties  have  as  yet 
met  with  no  marked  success.  The  first  cost  is  compara- 
tively high,  and  it  has  been  found  that  the  side  thrust  of 
the  heavy  rolling  stock  on  the  rails  has  a  tendency  to  shear 
off  the  bolts  with  which  the  tie  and  rail  are  fastened  to- 
gether. Ties  of  concrete  have  also  been  made,  but  their 
high  cost  and  extreme  rigidity  seem  likely  to  prevent  their 
general  use. 

To  retard  decay  wooden  ties  are  treated,  and  such  good 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT       45 

results  have  been  obtained,  that  most  of  the  large  rail- 
roads of  the  Linked  States  now  use  wooden  ties  only  after 
they  have  been  subjected  to  some  preserving  process.  Many 
roads  possess  treating  plants  of  their  own,  where  not  only 
ties  but  other  timbers  employed  for  ordinary  construction 
purposes  are  treated.  The  two  most  common  methods  of 
preserving  wooden  ties  are  by  treating  them  with  creosote 
oil  or  with  a  solution  of  zinc  chloride.  These  liquids  pro- 
tect the  vegetable  fibers  of  the  wood  from  the  action  of 
water  and  air,  and  consequently  the  life  of  a  tie  treated  by 
either  process  is  greatly  prolonged.  Notwithstanding  the 
success  of  tie  preservation,  however,  the  growing  scarcity 
of  timber  is  causing  a  steady  advance  in  the  cost  of  wooden 
ties,  and  it  is  likely  that  in  the  future  the  use  of  some  form 
of  steeJ  tie  will  become  general. 

To  make  it  possible  to  maintain  a  level  track  and  to  dis- 
tribute evenly  the  load  of  moving  trains  the  railway  track 
is  usually  laid  upon  a  layer  of  ballast  from  9  to  18  inches 
in  thickness,  consisting  of  some  free-draining,  easily  worked 
material.  Crushed  rock,  the  pieces  varying  from  V/2  inches 
to  3  inches  in  thickness,  makes  the  best  ballast,  though  its 
first  cost  is  greater  than  that  of  other  materials  employed. 
Gravel  is  widely  used,  but  it  is  dustier  and  less  firm  than 
crushed  rock,  and  it  affords  poorer  drainage.  Some  of 
the  other  materials  utilized  for  ballast  are  slag  from  iron 
furnaces,  cinders  and  burnt  clay. 

The  development  of  the  locomotive  in  the  United  States 
has  had  an  interesting  history.  It  must  be  remembered  that 
when  the  first  railroads  were  constructed  it  was  not  yet 
certain  that  the  use  of  steam  traction  would  be  possible, 
and  on  several  roads,  notably  the  Baltimore  and  Ohio,  the 
Mohawk  and  Hudson,  and  the  Philadelphia  and  Columbia, 
locomotives  were  preceded  by  horses.  The  Charleston  and 
Hamburg  Railroad  in   South  Carolina  was  the  first  road 


46 


RAILROAD  TRANSPORTATION 


built  solely  with  reference  to  the  immediate  use  of  steam 
for  motive  power,  though  the  first  locomotive  actually  run 
upon  an  American  road  was  used  on  a  short  portion  of  a 
line  between  Carbondale  and  Honesdale,  Pa.  This  loco- 
motive, the  Stourbridge  Lion,  was  imported  from  England 
in  1829.  It  proved  too  heavy  for  the  trestles  of  the  road, 
however,  and  it  was  never  put  into  regular  service. 


Teteb  Cooper's  Locomotive,  1S30 

Locomotive  building  in  the  United  States  began  in  1830. 
Indeed,  experiments  were  begun  the  previous  year  by  Peter 
Cooper  and  others.  Peter  Cooper  expected  financial  gains 
from  the  successful  completion  of  the  Baltimore  and  Ohio, 
and  when  it  seemed  uncertain  whether  locomotives  could  be 
run  on  a  road  having  grades  and  sharp  curves,  Cooper 
designed  a  little  engine  called  the  Tom  Thumb,  which 
w  sighed  barely  a  ton,  but  which  succeeded,  in  August  1830, 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      47 

in  hauling  4^/2  tons  around  curves  and  up  grades  at  a 
speed  of  12  to  15  miles  an  hour,  and  did  much  toward 
demonstrating  the  possibility  of  using  steam  locomotives  on 
American  railroads. 

The  first  locomotives  constructed  in  the  United  States, 
for  actual  service  on  a  railroad  were  built  in  New  York 
City  at  the  West  Point  Foundry  Works.  Locomotive  No.  1 
was  the  Best  Friend,  erected  in  1830,  and  put  into  service; 
that  year  on  the  Charleston  and  Hamburg  Railroad.  The 
following  year  the  West  Point  was  delivered  to  the  same 
company.  The  third  locomotive  to  come  from  the  West 
Point  Foundry  Works  was  the  De  Witt  Clinton,  also  built 
in  1 83 1,  and  put  into  use  on  the  Mohawk  and  Hudson 
Railroad  between  Albany  and  Schenectady.  Machinists  in 
New  York,  Baltimore,  York,  Pa.,  and  elsewhere  were  study- 
ing and  experimenting,  so  that  within  two  years  from  the 
time  when  the  first  tracks  were  laid  American  builders  had 
demonstrated  their  ability  to  construct  locomotives  adapted 
to  the  requirements  imposed  by  American  conditions. 
Among  the  firms  which  early  undertook  locomotive  con- 
struction was  the  one  founded  in  Philadelphia  by  Matthias 
Baldwin,  whose  first  engine,  the  Old  Ironsides,  appeared  in 
1832.  Up  to  June  1,  1920,  the  Baldwin  Locomotive  Works 
constructed  more  than  45,000  locomotives,  and  in  prosper- 
ous times  it  builds  more  than  2,000  each  year. 

The  influence  of  George  Stephenson,  of  England,  and 
of  his  celebrated  locomotive,  the  Rocket,  was  felt  in  the 
L'nited  States,  but,  considering  the  undeveloped  condition 
of  American  industries  in  1830,  a  surprisingly  small  num- 
ber of  English  engines  were  imported.  The  needs  of  our 
railroads  were  mainly  supplied  by  our  own  foundries  and 
shops.  Nor  were  British  models  followed  to  much  extent. 
American  designers  followed  new  lines  in  order  to  meet 
novel  conditions.  They  were  so  successful  in  making  en- 
gines   that    would    work    on    curves    and    climb    grades 


48 


RAILROAD  TRANSPORTATION 


that    American    locomotives    soon    began    to    be    sold    in 
England. 

As  compared  with  the  locomotives  with  which   we  are 


The  Old  Ironsides,  1832 


now  familiar,  those  built  in  1830  seem  tiny  and  curiously 
designed.  The  first  locomotives  constructed  for  actual  serv- 
ice weighed  from  3  to  5  tons ;  the  weight  of  the  De  Witt 
Clinton  was  3^2  tons.     The  English  engines  imported  were 


De  Witt  Clinton  Engine  and  Train,  1831 

double  that  weight  and  proved  too  heavy  for  the  tracks 
with  rails  of  wood  surfaced  with  strap  iron.  The  John 
Bull  engine,  shown  in  the  illustration,  was  imported  in  1831 
for  use  on  the  Camden  and  Amboy  line,  the  line  connecting 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      49 

New  York  and  Philadelphia.  It  weighed  10  tons,  and  was 
the  heaviest  engine  run  up  to  that  time.  Indeed,  its  great 
size  was  a  positive  disadvantage  to  the  company  for  some 
time. 

The  American  locomotives  and  cars,  unlike  the  English 
and   those   on   the   Continent,   where   English  models   were 


generally  followed,  early  adopted  a  swivel  truck.  After 
the  first  few  years  practically  all  American  locomotives 
had  eight  wheels,  four  driving  wheels  under  the  rear  part 
of  the  engine  and  a  four-wheeled  truck  carrying  the  fore 
part  of  the  boiler,  the  truck  being  fastened  to  the  engine 
by  means  of  a  bolt  which  permitted  the  truck  to  swing  or 


Lancaster  Engine  and  Train,  Run  on  Pennsylvania  State 

Railroad,  1834 


swivel  through  several  degrees  and  enabled  the  engine  to 
round  sharp  curves.  The  swiveling  truck  seems  to  have 
been  thought  of  by  several  people  about  the  same  time. 
Ross  Winans,  of  Baltimore,  used  it  under  a  passenger 
coach  in  1831.  The  same  year  he  placed  a  truck  under 
the   forward  part  of   a   locomotive.      In    1831,   moreover, 


50 


RAILROAD  TRANSPORTATION 


the  truck  principle  was  applied  to  two  locomotives  built 
in  New  York.  One  was  designed  by  Horatio  Allen,  while 
chief  engineer  of  the  Charleston  and  Hamburg  Railroad, 
and  the  other  by  John  B.  Jervis,  chief  engineer  for  the 
Mohawk  and  Hudson  Railroad.  The  engine  planned  by 
Jervis  was  more   in   accordance   with   subsequent   designs, 


First  Campbell  Locomotive,  183G 

to  the  locomotive  having  four  connected  driving  wheels  and 
a  four-wheeled  truck.  The  first  engine  of  this  design  was 
built  in  1836  by  James  Brooks  for  Henry  R.  Campbell,  both 
of  Philadelphia.  This  speedily  became  the  prevailing  de- 
sign for  the  passenger  service,  and  has  remained  until  the 
present  day  the  approved  form  of  passenger  locomotive, 
except  when  special  conditions  require  the  use  of  a  loco- 
motive of  a  different  type. 

One  essential  feature  of  the  locomotive  awaited  intro- 
duction until  1837,  and  that  was  the  use  of  equalizing 
beams  by  means  of  which  the  weight  on  the  driving  wheels 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      51 

ceases  to  be  affected  by  the  inequalities  of  the  elevation 
in  the  track.  Since  1837  locomotives  have  been  so  con- 
structed that  each  driving  wheel  can  have  a  vertical  motion 
independent  of  the  other  wheels,  and  can  so  move  without 
changing  very  greatly  the  pressure  imposed  by  the  wheel 
on  the  track.  Equalizing  beams  were  first  used  in  the 
Hercules,  designed  by  Joseph  Harrison,  Jr.,  and  constructed 
by  the  Baldwin  Locomotive  Works.  Another  notable  im- 
provement was  accomplished  in  1842  when  Matthias  Bald- 


American   (4-4-0)   Type  of  Locomotive 
Built  by  the  Baldwin  Locomotive  Works  for  the  Ligonier  Valley  Rail- 
road in  1914.    Weight,  engine  and  tender,  200,000  pounds ;  weight 
on  driving  wheels,  81,400  pounds. 


win  invented  the  flexible  beam  truck  by  the  use  of  which 
the  different  pairs  of  locomotive  drivers  in  passing  a  curve 
could  move  laterally  in  opposite  directions,  the  axles  yet 
remaining  parallel  to  each  other. 

With  the  steady  and  rapid  increase  of  the  railway  busi- 
ness there  came  a  need  for  locomotives  of  greater  power. 
Since  the  tractive  force  exerted  could  be  augmented  by 
increasing  the  weight  resting  on  the  driving  wheels,  addi- 
tional power  was  secured  by  the  construction  of  heavier 
locomotives.  To  enable  the  track  to  sustain  the  heavier 
equipment  the  weight  was  distributed  by  adding  to  the 
number  of  drivers  and  thus  extending  the  area  of  the  base 


52 


RAILROAD  TRANSPORTATION 


upon  which  the  weight  rested,  the  difficulty  of   rounding 
curves   with   locomotives   having   long   wheel   bases   being 


Ten-wheel  (4-6-0)   Type  of  Locomotive 
Built  by  the  Baldwin  Locomotive  Works  for  the   Southern  Railway 
in  1914.     Weight,  engine  and  tender,  240,000  pounds ;  weight  on 
driving  wheels,  109,200  pounds. 

solved  by  using  flexible  beam  trucks  and  journal  boxes  with 
considerable   lateral   play,   by  making  part  of   the   drivers 


Mogul   (2-6-0)   Type  of  Locomotive 

Built  by  the  Baldwin  Locomotive  Works  in  1915.  Weight,  engine 
and  tender,  205,000  pounds ;  weight  on  driving  wheels,  104,650 
pounds. 


without  flanges,  and  by  increasing  slightly  the  gauge  of  the 
curved  portions  of  the  track. 

Ten-wheeled  locomotives,  having  a  four-wheeled  leading 
truck  and  three  pairs  of  connected  drivers  came  into  use 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      53 

about  1850,  and  they  have  ever  since  been  popular  in  both 
freight  and  passenger  service.    About  1865  the  Mogul  loco- 


CONSOLIDATION     (2-8-0)     TYPE    OF    LOCOMOTIVE 

Built  by  the  Baldwin  Locomotive  Works  for  the  Pennsylvania  Rail- 
road in  1915.  Weight,  engine  and  tender,  431,000  pounds ;  weight 
on  driving  wheels,  220,900  pounds. 

motive  was  developed  from  the  ten-wheeled  type  by  decreas- 
ing the  number  of  truck  wheels  from  four  to  two.     This 


Mikado   (2-8-2)   Type  of  Locomotive 
Built  by  the  Baldwin  Locomotive  Works  for  the  Chicago,  Burlington 
and  Quincy  Railroad  in  191").    Weight,  engine  and  tender,  497,500 
pounds ;  weight  on  driving  wheels,  239,900  pounds. 


change  increased  the  proportion  of  weight  resting  on  the 
drivers  from  70  per  cent  to  85  per  cent  and  consequently 
gave  a  much  greater  tractive  force.     For  many  years  the 


54 


RAILROAD  TRANSPORTATION 


Mogul  was  the  leading  type  of  locomotive  for  heavy  freight 
service,  and  it  is  still  used  extensively.  The  Consolidation 
type,  with  four  pairs  of  connected  drivers  and  one  pair  of 
truck  wheels,  introduced  about  the  same  time  the  Mogul 
was  first  used,  is  now  employed  in  freight  service  more 
extensively  than  any  other  single  type  of  locomotive.  The 
Decapod,  with  a  two-wheeled  truck  and  10  connected  driv- 
ers, and  the  Centipede,  with  a  similar  truck  and  12  drivers, 
have  also  been  used  to  some  extent.  The  difficulty  of  back- 
ing a  locomotive  with  such  a  long  wheel  base  around  curves 


Atlantic  (4-4-2)  Type  of  Locomotive 
Built  by  the  Baldwin  Locomotive  Works  for  the  Baltimore  and  Ohio 
Railroad  in  1910.     Weight,  engine  and  tender,  344,000  pounds ; 
weight  on  driving  wheels,  116,000  pounds. 


led  to  the  adoption  of  a  two-wheeled  trailing  truck,  giving 
rise  to  new  types,  the  Santa  Fe,  the  Prairie  and  the  Mikado. 
The  additional  truck  not  only  facilitated  the  backward  mo- 
tion of  the  locomotives  but  it  also  made  possible  the  con- 
struction of  deeper  and  wider  fire  boxes,  thereby  permit- 
ting the  development  of  greater  power.  The  Mikado,  with 
a  leading  and  trailing  truck,  each  two-wheeled,  and  four 
pairs  of  connected  drivers,  has  become  very  popular  for 
heavy  freight  service. 

Additional  types  of  locomotives  having  the  four-wheeled 
leading    truck    have    also    been    developed,    the    two    most 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      55 


notable  ones  being  the  Pacific  and  the  Atlantic.  The  former 
has  three  pairs  of  connected  drivers  and  a  two-wheeled 
trailing  truck,  and  is  used  extensively  in  heavy  passenger 
and  fast  freight  service.  The  Atlantic  type,  first  con- 
structed in  1895  by  the  Baldwin  Locomotive  Works  for 
the  Atlantic  Coast  Line  Railroad,  has  two  pairs  of  con- 
nected drivers  and  a  two-wheeled  trailing  truck.  Like  the 
American,  which  it  most  closely  resembles,  it  is  used  chiefly 
for  fast  passenger  service. 

The  latest  step  in  the  development  of  steam  locomotives 


Pacific  (4-6-2)  Type  of  Locomotive 
Built   by   the  Baldwin   Locomotive  Works   for  the  Atchison,   Topeka 
and    Santa    Fe   Railway   in   1915.      Weight,    engine   and    tender, 
506,000  pounds  ;  weight  on  driving  wheels,  172,550  pounds. 

for  heavy  freight  service  has  been  the  construction  of  the 
articulated  locomotive.  The  difficulty  of  rounding  curves 
with  locomotives  having  more  than  five  pairs  of  drivers 
attached  to  a  rigid  frame  led  to  the  introduction  of  this 
type,  designed,  in  1888,  by  a  Frenchman,  Anatole  Mallet, 
after  whom  it  is  named.  It  has  one  fire  box  and  one  boiler, 
but  has  two  sets  of  drivers  and  cylinders  attached  to 
separate  frames  which  are  connected  by  a  movable  joint. 
This  arrangement  divides  the  wheel  base  into  two  inde- 
pendent units,  and  the  jointed  frame  affords  the  flexibilitv 
necessary  to  enable  the  locomotive  to  pass  around  sharp 
curves.      The   first   Mallet   locomotive   constructed    in   the 


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TRACK  AND  LOCOMOTIVE  DEVELOPMENT      57 

United  States  was  built  in  1904  by  tbe  American  Loco- 
motive Company  at  Schenectady,  N.  Y.,  for  the  use  of 
the  Baltimore  and  Ohio  Railroad.  The  use  of  this  type 
has  increased  greatly  in  recent  years,  especially  on  those 
roads  having  a  heavy  traffic  crossing  mountain  grades, 
where  it  is  employed  for  pusher  service.  Some  Mallet  loco- 
motives have  been  built  with  articulated  boilers,  but  in 
most  of  them  the  boilers  are  of  rigid  construction  and  only 
the  frames  jointed.  At  the  Baldwin  Locomotive  Works 
several  Mallet  locomotives  have  been  built  by  combining 
and  rebuilding  two  locomotives  of  ordinary  type.  In  1913 
this  firm  constructed  for  the  Erie  Railroad  a  triplex  articu- 
lated locomotive  having  three  sets  of  drivers  and  cylin- 
ders, two  sets  under  the  boiler  and  one  set  under  the  tender. 
Each  set  of  drivers  contains  four  coupled  pairs,  the  total 
length  of  the  driving  wheel  base  being  71^2  feet. 

The  simplest  system  of  classifying  locomotives  is  that 
known  as  Whyte's  classification,  in  which  each  type,  except 
the  Mallet,  is  described  by  a  series  of  three  figures,  the 
first  figure  indicating  the  number  of  leading  truck  wheels, 
the  second  the  number  of  drivers  and  the  third  the  number 
of  trailing  wheels.  Thus  the  American  type  is  the  4-4-0, 
the  Atlantic  the  4-4-2,  the  Ten-wheel  the  4-6-0,  the  Pacific 
the  4-6-2,  the  Mogul  the  2-6-0,  the  Consolidated  the  2-8-0, 
the  Prairie  the  2-6-2,  the  Mikado  the  2-8-2,  the  Santa  Fe 
the  2-10-2,  etc.  Switching  locomotives  as  a  rule  have  their 
entire  weight  on  the  drivers  and  are  built  without  truck 
wheels,  the  most  common  type  being  the  0-6-0.  In  desig- 
nating the  Mallet  locomotives  four  figures  are  used  instead 
of  three,  the  second  indicating  the  number  of  drivers  under 
the  forward  portion  of  the  boiler  and  the  third  the  num- 
ber under  the  rear  portion.  Thus  a  locomotive  of  the 
2-6-6-2  class  would  have  a  leading  and  a  trailing  truck  of 
two  wheels  each  and  two  sets  of  drivers,  three  pairs  in 
each  set.     The  triplex  articulated  locomotive  is  a  2-8-8-8-2 


58  RAILROAD  TRANSPORTATION 

type.  This  system  of  classifying  of  course  gives  little  in- 
formation about  the  engine  other  than  the  number  and  kind 
of  wheels.  The  motive  power  department  of  a  railroad  has 
a  much  more  complex  system  of  classification,  in  which,  by 
using  a  combination  of  figures  and  letters,  locomotives  are 
classified  according  to  other  important  structural  features. 
The  Pennsylvania  Railroad  Company  issues  a  classification 
list  covering  more  than  150  different  kinds  of  steam  loco- 
motives. 

During  the  past  sixty  years  a  great  many  important  im- 
provements have  been  made  in  locomotive  construction. 
Among  the  most  valuable  innovations  has  been  the  intro- 
duction of  a  compound  locomotive,  in  which  the  steam,  in 
passing  from  the  boiler  to  the  exhaust,  is  used  in  two  cylin- 
ders in  succession.  By  this  means  a  greater  amount  of 
power  is  derived  from  a  given  quantity  of  fuel.  Some 
compound  locomotives  are  equipped  with  two  cylinders,  the 
high  pressure  cylinder  being  on  one  side  and  the  low  pres- 
sure cylinder  on  the  other ;  some  possess  four  cylinders,  a 
high  and  a  low  pressure  cylinder  on  each  side,  placed  either 
tandem  or  one  above  the  other;  while  still  another  kind, 
the  balanced  type,  has  the  axes  of  the  four  cylinders  in  the 
same  horizontal  plane,  the  high  pressure  cylinders  being 
situated  between  the  locomotive  frames  and  their  piston 
rods  connected  to  cranks  attached  to  the  axle  of  a  pair  of 
the  driving  wheels.  On  the  railroads  of  the  United  States 
compound  engines  are  on  the  whole  but  little  used,  it  being 
the  consensus  of  opinion  among  motive  power  officials  that 
the  saving  made  in  fuel  by  their  use  is  more  than  offset 
by  the  high  cost  of  maintenance  of  the  somewhat  com- 
plicated machinery  necessarily  employed  in  their  construc- 
tion.    Mallet  locomotives,  however,  are  all  compound. 

Another  important  fuel-saving  device  recently  introduced 
is  the  steam  superheater.  After  passing  from  the  boiler, 
the  steam,   before   entering  the  cylinders,   passes   through 


TRACK  AND  LOCOMOTIVE  DEVELOPMENT      59 

a  system  of  tubes,  either  contained  in  the  smoke  box  or  ex- 
tending from  a  drum  in  the  smoke  box  back  into  the  boiler 
flues,  where  its  temperature  is  greatly  increased  over  the 
point  reached  in  the  boiler.  The  superheated  steam  has 
no  greater  pressure  than  non-superheated  steam  but  it  has  a 
greater  duration  of  maximum  expansive  power,  inasmuch 
as  it  must  be  cooled  more  before  it  reaches  the  point  of 
condensation.  Superheating  affords  more  units  of  power 
per  unit  of  fuel  consumed,  and  since  the  maintenance  costs 
of  various  types  of  superheaters  are  small  compared  to  the 
saving  of  fuel  which  their  use  permits,  they  are  installed 
in  many  locomotives.  Heavy  locomotives  now  built  are 
also  equipped  with  automatic  mechanical  stokers,  which  con- 
vey the  coal  from  the  tender  to  the  fire  box.  In  the  far 
West,  where  coal  is  scarce  and  oil  plentiful,  most  of  the 
locomotives  use  crude  petroleum  for  fuel. 

The  ordinary  locomotive  in  use  today  weighs  as  much  as 
twenty-five  of  the  engines  used  at  the  beginning  of  rail- 
roading. In  1850  a  locomotive  weighing  more  than  50,000 
pounds  was  considered  very  large.  A  locomotive  weigh- 
ing 200,000  pounds  is  now  not  considered  notably  heavy, 
and  many  reach  a  weight  of  500,000  pounds.  The  giant 
triplex  Mallet  locomotive,  referred  to  above,  which  is  the 
largest  and  most  powerful  locomotive  ever  built,  has  a  total 
weight,  when  in  working  condition,  of  853,050  pounds,  of 
which  761,600  pounds  rests  on  the  drivers.  With  the  in- 
crease in  the  size  of  locomotives  the  tractive  power  has 
been  enormously  increased.  Half  a  century  ago  a  train 
load  of  200  tons  would  have  been  a  heavy  one  to  handle, 
but  now  2,500  to  4,000  tons  are  hauled  over  long  distances 
by  the  largest  types  of  freight  engines,  and  loads  of  more 
than  6,000  tons  are  not  uncommon.  The  achievements  in 
the  increase  of  speed  of  locomotives  have  been  less  wonder- 
ful, but  the  schedule  speed  of  60  to  65  miles  an  hour  for 
passenger  trains,  now  regularly  maintained  on  many  Ameri* 


60  RAILROAD  TRANSPORTATION 

can  and  European  roads,  is  double  the  maximum  rate  pos- 
sible a  half  century  ago,  and  the  discomforts  and  risks  of 
the  present  are  incomparably  less  than  those  formerly  in- 
cident to  travel. 


CHAPTER  V 

THE  MECHANISM  OF  THE  RAILROAD   (Concluded)—  THE 
CAR,  TERMINAL  AND  OPERATION 


Early  passenger  cars,  62.  Sleeping  cars,  63.  Steel  passenger  cars, 
63.  The  air  brake,  65.  Freight  cars,  66.  Terminal  facilities, 
68.  The  passenger  terminal,  69.  The  freight  terminal,  72.  Elec- 
tric telegraph,  76.  Railroad  signaling,  77.  Electrification  of 
steam  railroads,  78.     References,  82. 

The  improvements  in  travel  and  traffic  have  resulted 
quite  as  much  from  the  progressive  adaptation  of  the 
vehicle  to  the  service  to  be  performed  as  from  betterments 
in  the  roadbed  and  the  locomotive.     The  passenger  coaches 


Passenger  Coach,  183.j.    Used  on  the  Portage  Railroad  over  the 
Alleghany  Mountains,  Pennsylvania 

first  used  were  similar  to  the  stagecoaches,  and  this  was 
so  because  carriage  builders  in  making  vehicles  for  the 
railroad  followed  the  designs  with  which  they  were  fa- 
miliar. Indeed,  in  Europe  the  passenger  coaches  in  use 
today,  with  their  small  compartments  entered  from  the  side, 
indicate  that  the  stagecoach  influenced  the  style  of  con- 
struction. Coaches  of  the  European  type  were  used  on 
a  few  of  the  early  American  roads. 

61 


62  RAILROAD  TRANSPORTATION 

The  construction  of  coaches  for  American  railroads,  dif- 
fering totally  in  design  from  those  used  on  highways,  began 
with  the  opening  of  the  first  lines.  The  first  railroad 
coaches  were  not  unlike  the  four-wheeled  caboose  of  today 
in  appearance,  but  after  1830  longer  vehicles  mounted  on 
two  four-wheeled  trucks  began  to  be  used,  and  the  typical 
American  coach  soon  came  to  differ  from  the  European  in 
being  longer,  in  having  the  doors  at  the  ends,  and  in  having 
a  central  aisle.  This  form  of  coach  was  probably  adopted 
because  the  curves  in  our  tracks  required  the  use  of  trucks 
under  the  cars  as  well  as  under  the  engines. 


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Many  improvements  in  design  were  necessary  to  produce 
the  comfortable  coaches  of  today.  Better  ventilation  was 
secured  by  raising  the  central  half  of  the  roof  and  insert- 
ing "deck-lights."  This  was  first  done  in  1836,  but  it  was 
several  years  before  the  raised  roof  became  a  feature  of 
all  passenger  cars.  The  roofs  of  the  best  railway  coaches 
now  have  special  appliances  for  admitting  fresh  air  and 
are  equipped  with  ventilators,  so  constructed  that  when  the 
train  is  in  motion  the  rush  of  the  atmosphere  creates  a 
suction  which  draws  the  impure  air  from  the  interior.  Even 
with  these  improvements,  however,  the  problem  of  main- 
taining pure  air  in  crowded  cars  has  not  yet  been  fully 
solved. 

For  30  years  the  jolting  caused  by  the  loose  coupling  of 
cars  was  a  great  discomfort  to  travelers,  but  patent  auto- 
matic couplers  and  spring  and  friction  draft  gears,  of  which 
there  are  many  kinds  in  use,  have  now  obviated  that  trouble. 


CAR,  TERMINAL  AND  OPERATION  63 

At  first  cars  were  heated  with  rude  wood-  or  coal-burning 
stoves.  Not  only  would  such  stoves  fail  to  heat  the  coaches 
properly,  but  in  case  of  a  wreck  they  would  set  fire  to  the 
train,  adding  greatly  to  the  loss  of  life  and  property.  Pas- 
senger trains  are  now  heated  throughout  with  steam  from 
the  locomotive.  The  old  oil  and  gas  lights  are  fast  being 
replaced  by  electric  lights,  the  current  for  which  is  sup- 
plied by  a  small  dynamo  supported  on  the  truck  and  run  by 
a  belt  encircling  the  car  axle. 

The  sleeping  car,  as  we  know  it  today,  originated  with 
George  M.  Pullman,  who  built  the  Pioneer  A  in  1864. 
Cars  had  been  fitted  up  with  tiers  of  bunks  on  each  side 
as  early  as  1837,  but  the  discomforts  of  such  accommoda- 
tions were  so  great  that  sleeping  cars  did  not  become  popu- 
lar until  the  Pullman  and  Wagner  services  became  available. 
The  sleeping  car  was  soon  followed  by  the  buffet  or  hotel 
car,  and  that  by  drawing  room  and  dining  cars.  The  neces- 
sity for  passing  from  one  car  to  another  suggested  the 
vestibuling  of  trains.  The  idea  originated  in  1852,  when 
a  man  by  the  name  of  Waterbury  designed  a  vestibuled  car. 
Some  cars  were  fitted  up  with  vestibules  that  year,  but  the 
first  vestibuled  train  like  those  with  which  we  are  familiar 
was  designed  and  built  by  Pullman  and  was  run  on  the 
Pennsylvania  Railroad  in  1886. 

Within  the  last  20  years  a  noteworthy  improvement  has 
been  made  in  passenger  cars  by  the  substitution  of  steel 
for  wood  in  their  construction.  The  greatest  advantage 
of  the  steel  car  comes  from  the  security  it  affords  the 
traveler  in  case  of  accidents.  It  is  seldom  telescoped,  and 
cannot  be  splintered,  in  collisions  or  when  overturned,  and 
it  is,  of  course,  non-inflammable.  The  superior  safety  of 
steel  cars  has  led  not  infrequently  to  agitation  for  a  law 
compelling  their  universal  use.  No  such  law  has  been 
passed,  however,  and  it  is  not  probable  that  any  will  be 
necessary.     Railroad  companies  find  it  more  economical  in 


64  RAILROAD  TRANSPORTATION 

every  way  to  use  steel  cars ;  they  last  longer,  are  less  ex- 
pensive to  maintain,  and  their  use  brings  about  a  great  de- 
crease of  claims  for  damages.  The  building  of  wooden  cars 
has  already  been  virtually  discontinued,  and  on  all  the  rail- 
roads of  the  country  wooden  coaches  are  constantly  being 
replaced  by  coaches  of  steel.  Out  of  56,000  cars  in  use  for 
passenger  service  in  1918,  nearly  14,000  were  of  steel  con- 
struction throughout,  and  6,000  possessed  steel  underframes. 
On  January  1,  1921,  the  Pennsylvania  Railroad  Company  had 
in  service  2,133  steel  passenger  cars  and  1,549  wooden  pas- 


All  Steel  Passenger  Coach 
Pennsylvania   Railroad  Company' 

senger  cars,   all   of   the   steel   cars   having  been   acquired 
since  1907. 

The  air  brake,  invented  by  George  Westinghouse  and 
first  successfully  applied  to  passenger  trains  in  1868,  was 
one  of  the  most  valuable  of  all  the  inventions  by  which 
the  improvement  of  the  transportation  service  has  been 
brought  about.  In  1887  the  air  brake  had  been  developed 
so  that  it  was  practicable  to  use  it  on  freight  trains,  and 
at  the  present  time  the  law  requires  all  trains  in  the  United 
States  to  be  equipped  with  air  brakes  by  which  the  train 
can  be  controlled  by  the  engineer.  The  first  air  brake  was 
known  as  the  straight-air  brake.  Compressed  air  stored  in 
a  tank  under  the  locomotive  was  admitted  through  the  train 


CAR,  TERMINAL  AND  OPERATION  65 

pipe  to  cylinders  under  the  coaches,  the  pressure  on  the 
pistons  in  the  cylinders  being  transmitted  to  the  brake 
shoes  by  a  series  of  connected  levers.  The  defect  in  this 
type  of  brake  was  that  it  was  not  automatic,  and  if  the 
train  broke  in  two,  severing  the  train-pipe  connection,  the 
brake  system  on  the  entire  train  became  useless. 

In  1872-73  Westinghouse  perfected  his  first  automatic 
brake,  the  essential  features  of  which  are  still  retained  in 
air-brake  construction.  Under  each  car  is  placed  an  auxili- 
ary reservoir,  containing  a  supply  of  compressed  air,  which, 
by  the  action  of  an  ingeniously  devised  valve  is  admitted 
to  the  brake  cylinder  upon  the  decrease  of  the  air  pressure 
in  the  train  pipe.  When  a  train  is  accidentally  uncoupled 
the  escape  of  air  from  the  train  pips  automatically  causes 
all  brakes  on  the  train  to  be  set.  Refinements  of  this 
mechanism  have  consisted  mainly  of  devices  by  which  the 
engineer  can  bring  about  more  speedily  the  action  of  the 
brakes  throughout  the  entire  train.  In  the  original  form 
the  application  of  the  brakes  was  made  by  releasing  the  air 
only  through  a  valve  in  the  cabin  of  the  engineer.  The 
result  was  that  in  a  long  train  the  brakes  nearest  the 
locomotive  were  set  several  seconds  in  advance  of  the  brakes 
near  the  rear  of  the  train,  and  cars  were  subjected  to  a 
series  of  damaging  shocks.  Often,  too,  the  train  when  start- 
ing, would  break  in  two,  because  of  the  tardy  release  of 
the  brakes  on  the  rear  cars.  The  "quick-action"  brake  and 
its  modifications  overcame  these  difficulties  and  made  it 
possible  to  use  the  air  brake  on  the  longest  trains.  Recently 
the  Westinghouse  Company  perfected  a  pneumatic  brake  for 
passenger  trains,  in  which  the  admission  of  air  to  all  the 
brake  cylinders  is  accomplished  simultaneously  by  the  ac- 
tion of  electricity. 

The  air  brake  reduced  by  about  90  per  cent  the  time  and 
the  distance  required  to  stop  trains  with  the  old  hand-brake 
system.    It  has  greatly  lessened  the  risks  to  which  employees 


66 


RAILROAD  TRANSPORTATION 


are  exposed,  has  decreased  the  danger  of  travel  and  has 
made  possible  much  greater  speed  for  freight  as  well  as 
for  passenger  trains. 

The  freight  car  is  built  today  in  many  designs  for  the 
better  accommodation  of  the  numerous  kinds  of  traffic  to  be 
handled.  Starting  with  only  open  and  box  cars,  crudely 
constructed,  mounted  on  four  wheels  and  having  a  load- 
ing capacity  of  three  to  five  tons,  the  freight  equipment 
of  railroads  has  come  to  include  the  large  variety  of  cars 


All  Steel  Box  Cab 
Pennsylvania   Railroad  Company 

with  which  we  are  now  familiar,  provided  with  many 
mechanical  appliances  for  saving  labor  costs  and  minimizing 
damages  to  property  in  transit,  and  capable  of  carrying  loads 
of  over  50  tons.  Many  of  the  improvements  in  car  con- 
struction, as,  for  instance,  the  swiveling  truck  having  four 
or  more  wheels,  improved  couplings,  and  air  brakes,  were 
as  applicable  to  the  freight  car  as  to  the  passenger 
coach. 

Specialization  in  freight  cars  continues  with  the  growing 
volume  of  traffic.  There  are  special  cars  for  carrying 
cattle,  dressed  meats,  oil,  coal,  coke,  iron  ore,  fruit,  milk, 
and  many  other  commodities,  a  special  car  being  brought 
into  use  whenever  there  develops  a  new  kind  of  traffic 
running  regularly  and  in  large  volume  and  not  capable  of 


CAR,  TERMINAL  AND  OPERATION  67 

being  handled  advantageously  in  the  ordinary  box  or  flat 
cars.  The  invention  of  the  refrigerator  and  heater  cars 
was  incidental  to  this  specialization,  and  has  been  of  great 
value  to  producer  and  consumer.  The  distribution  of  perish- 
able commodities  throughout  the  entire  country  can  be 
carried  on  during  all  seasons  of  the  year,  to  the  great  ad- 
vantage of  both  producer  and  consumer.  The  products 
of  the  tropical  and  the  cold  sections  of  the  world  are  now 
available  for  the  people  of  both  regions  at  all  times,  and 
the  volume  and  value  of  freight  transported  are  greater 
than  they  could  be  when  the  movement  of  many  kinds  of 
goods  was  dependent  upon  the  weather. 

The  increase  in  the  capacity  of  the  freight  car,  particu- 
larly in  the  United  States,  has  been  quite  as  remarkable  as 
the  growth  in  the  size  of  locomotives.     With  the  construc- 
tion  of   stronger   tracks   and   with   the   use   of    steel    rails 
the  railroad  companies  have  taken  advantage  of  the  economy 
resulting  from  the  use  of  large  cars.     The  larger  the  cars 
the  less  the  "tare"  or  weight  of  the  vehicle  as  compared 
with   the   weight  of   the   cargo.     The   larger  the  cars   the 
greater  the   live  load   the  engine   can  haul.     Thirty  years 
ago  20  tons  was  the  standard  carload  in  this  country,  and 
such  a  weight  would  today  be  considered  a  heavy  one  in 
most  countries  in  Europe,  but  for  some  time  past  the  box 
and  open   cars   in  the  United    States  have  been   built  to 
carry   30  tons   and  more.     The   average  capacity   of   the 
2,427,460  freight  cars  in  use  in  this  country  in   1918  was 
41  tons.    Of  this  number  about  five-twelfths  were  box  cars, 
the  average  capacity  of  which  was  about  37  tons.    The  aver- 
age capacity  of  coal  cars,  which  made  up  more  than  a  third 
of  the  total  freight  car  equipment,  was  48  tons.     Few  box 
cars  of  less  than  30  tons  capacity  are  now  built  and  few 
coal  cars  of  less  than  50  tons.     Some  coal  cars  of  120  tons 
capacity  are  in  use.   A  cut  of  a  90-ton  car  is  shown  on  page 
68.  So  much  greater  was  the  capacity  of  the  average  coal  car 


68  RAILROAD   TRANSPORTATION 

than  that  of  other  cars,  that  this  type,  though  comprising  only 
about  two-fifths  of  the  total  number  of  cars,  furnished  four- 
ninths  of  the  total  car  capacity.  In  the  construction  of 
freight  cars,  as  of  passenger  cars,  steel  is  being  extensively 
employed.  In  fact  the  building  of  cars  with  a  capacity  of 
50  tons  or  more  has  been  made  possible  only  through  the 
use  of  steel  in  the  truck  frames  and  in  the  body  of  the  car. 
Coal  cars  are  now  made  almost  exclusively  of  pressed  steel, 
and  box  cars  of  steel  construction  throughout  are  by  no 
means  uncommon. 

The    facilities    for   caring   for   railway   traffic,   both   pas- 
senger and   freight,  at  stations  or  terminals  constitute  an 


All  Steel  Gondola  Car 
Six-wheeled  trucks  ;  capacity,  90  tons.     Norfolk  and  Western  Railway 

important  part  of  the  mechanism  with  which  the  trans- 
portation service  is  performed,  and  in  the  improvement  of 
these  facilities  the  progress  has  been  no  less  remarkable 
than  in  the  improvement  of  the  roadbed,  locomotives  and 
cars.  To  the  end  of  the  sixth  decade  of  the  nineteenth 
century  the  deficiency  of  station  and  terminal  equipment 
was  a  notable  feature  of  all  American  railways;  public 
houses  and  inns  often  supplied  the  place  of  passenger  sta- 
tions, and  nearly  all  the  adequate  freight  houses  belonged 
to  forwarding  agencies.  Today  one  of  the  most  highly  de- 
veloped and  efficient,  as  well  as  one  of  the  most  costly,  por- 
tions of  the  railroad  mechanism  is  the  equipment  provided 


CAR,  TERMINAL  AND  OPERATION  69 

for  the  reception  and  delivery  of  traffic  and  for  the  move- 
ment of  traffic  within  terminal  limits. 

The  modern  passenger  terminal  possesses  two  essential 
parts:  the  coach  yard,  where  cars  are  stored,  inspected, 
cleaned,  repaired,  and,  in  cold  weather,  heated  before  being 
attached  to  the  locomotive ;  and  the  passenger  station  where 
passengers  enter  and  leave  the  trains.  The  large  passenger 
station  always  has  four  distinct  parts,  the  ticket  and  baggage 
offices,  the  train  shed,  the  concourse  and  the  waiting  rooms, 
and  in  addition  to  these  may  usually  be  found  other  facilities, 
such  as  restaurants,  retail  stores,  news  stands,  and  often 
the  general  offices  of  the  railway  company.  Most  of  the 
great  passenger  stations  of  this  country  are  equipped  with 
a  huge,  overhanging  train  shed  entirely  covering  a  series 
of  stub  tracks  terminating  near  the  gates  through  which 
the  passengers  pass  between  the  concourse  and  the  plat- 
forms lying  along  the  track.  In  the  most  recently  built  sta- 
tions, a  part  of  the  tracks  at  least  are  through  tracks,  this 
type  affording  a  much  greater  train  capacity  in  proportion 
to  the  amount  of  space  occupied.  When  through  tracks 
are  used  passengers  go  to  and  from  the  track  platforms  by 
stairways  leading  to  subways  or  balconies  connecting  with 
the  concourse  and  waiting  rooms.  The  large  vaulted  train 
shed  is  gradually  disappearing.  In  the  terminals  where  elec- 
tricity is  used  to  operate  all  trains  the  space  above  the 
tracks  may  be  occupied  by  office  buildings ;  in  other  places 
each  platform  between  the  tracks  is  covered  with  a  small 
shed,  which  is  cheap  to  construct,  admits  the  sunlight,  and, 
by  not  extending  over  the  track,  permits  the  smoke  from 
the  locomotives  to  pass  immediately  to  the  open  air ;  and  In 
some  instances  the  tracks  are  all  covered  with  a  single  low 
roof  provided  with  slots  over  each  track,  through  which 
the  smoke  may  escape.  The  concourse  or  head-platform 
lies  between  the  track  platforms  and  the  station  building 
proper.     It  usually  adjoins  the  main  waiting  room;  and  it 


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72  RAILROAD  TRANSPORTATION 

is  equipped  with  street  entrances  and  exits  so  that  passengers 
may  enter  and  leave  without  passing  through  the  station 
building.  The  design  of  the  waiting  rooms  in  passenger 
stations  depends  upon  the  character  of  the  traffic  to  be 
accommodated.  The  South  Station  at  Boston  is  used  by 
more  passengers  in  a  single  year  than  any  other  station 
in  the  United  States,  but  since  the  traffic  consists  to  a  large 
extent  of  suburban  residents  there  is  less  need  for  extensive 
waiting  rooms  than  in  railway  stations  where  a  relatively 
large  proportion  of  the  traffic  is  made  up  of  through  pas- 
sengers changing  from  one  line  to  another  and  consequently 
needing  a  place  in  which  to  wait  for  trains.  In  the  Chicago 
and  Northwestern  Station  at  Chicago,  for  instance,  where 
large  numbers  of  persons  wait  daily  for  connecting  trains, 
very  extensive  facilities  are  provided  for  their  accommoda- 
tion, including  such  conveniences  as  a  laundry  for  the 
use  of  immigrants,  an  emergency  hospital,  bathrooms,  and 
private  rest  rooms. 

A  noteworthy  feature  of  the  large  passenger  stations 
constructed  in  the  United  States  in  recent  years  is  the 
great  advance  in  architectural  design.  The  Union  Station 
at  Washington,  probably  the  most  beautiful  passenger 
station  in  the  country,  harmonizes  admirably  with  the  other 
attractive  buildings  of  the  city,  and  the  magnificent  Penn- 
sylvania and  Grand  Central  stations  in  New  York  not  only 
show  the  results  of  earnest  endeavors  to  provide  the  most 
desirable  accommodations  for  the  traveling  public,  but  also 
represent  the  splendid  effects  obtainable  in  railway  archi- 
tecture. They  constitute  a  distinct  mark  in  the  artistic 
progress  of  the  nation. 

The  terminal  facilities  for  handling  freight  traffic  are 
much  more  complicated  than  those  provided  for  passenger 
traffic.  Ordinarily  one  large  passenger  station  is  suffi- 
cient for  a  city;  but  stations  and  sidings  for  the  reception 
and  delivery  of  freight  must  be  provided  often  at  dozens 


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74  RAILROAD  TRANSPORTATION 

of  places  throughout  urban  districts  and  special  equipment 
installed  for  handling  various  commodities.  Passengers  are 
able  to  look  out  for  themselves,  to  go  to  and  from  the 
station,  purchase  their  transportation,  select  the  proper 
trains,  load  and  unload  themselves,  and  when  necessary 
change  from  one  line  to  another.  Freight  traffic  is  loaded 
and  unloaded  by  hand  or  by  machinery,  weighed,  sorted 
and  placed  in  the  proper  cars,  and  the  cars  themselves  sorted, 
classified  and  sent  by  various  routes  to  their  destinations. 
For  the  reception  of  freight  transported  in  less  than  car- 
load quantities  adequate  space  must  be  supplied ;  and  at 
points  of  delivery  such  freight  must  be  stored  until  the 
consignee  is  notified  of  its  arrival  and  comes  to  take  it 
away.  Documents  must  be  made  out  for  each  shipment 
and  an  accurate  accounting  system  established  to  safeguard 
the  interests  of  both  the  railroad  and  its  patrons. 

There  are  two  classes  of  freight  houses,  the  inbound 
freight  house,  where  freight  is  received  from  the  cars 
for  delivery  to  consignees,  and  the  outbound  freight  house, 
where  freight  is  delivered  to  the  railroad  for  transportation. 
Ordinarily  a  single  freight  station  possesses  both  kinds  of 
freight  houses,  together  with  a  number  of  team  tracks,  where 
carload  freight  may  be  handled  directly  between  wagons  and 
cars.  Some  team  tracks  are  equipped  with  cranes  for  the 
loading  and  unloading  of  heavy  articles,  such  as  machinery, 
structural  steel,  and  stone.  Large  industrial  plants  nearly 
always  have  their  own  private  side  tracks  by  which  freight 
is  received  from  and  delivered  to  the  railroad.  Jfi 

At  terminals  where  large  quantities  of  certain  commodi- 
ties are  handled  special  facilities  are  provided.  Huge  eleva- 
tors are  built  and  grain  is  loaded  and  unloaded  by  machinery. 
Pens  are  provided  for  the  care  of  all  kinds  <>f  live  stock. 
The  modern  equipment  for  handling  iron  ore  and  coal  rep- 
resents the  most  complete  use  to  which  machinery  has  been 
put   for   loading  and   unloading   heavy    freight   quickly   and 


CAR,  TERMINAL  AND  OPERATION  75 

cheaply.  Electrically  operated  hoists,  traveling  cranes,  and 
car  dumps  accomplish  in  hours  what  formerly  took  days 
to  perform,  and  at  a  fraction  of  the  previous  cost.  Buckets 
holding  several  tons  of  ore  are  filled  automatically,  carried 
several  hundred  feet,  and  dumped,  all  in  a  few  seconds ; 
and  loaded  cars  are  picked  up  bodily  and  their  contents  of 
coal  or  ore  emptied  into  the  hold  of  a  vessel  or  upon  a 
storage  dump. 

The  sorting,  drilling  and  marshaling  of  the  innumerable 
cars  in  which  the  freight  is  conveyed  take  place  in  the 
freight  yard.  Incoming  trains  are  broken  up  and  the  cars 
classified  according  to  their  destination — freight  house, 
team  track,  industrial  siding  or  connecting  railway  line; 
and  cars  arriving  from  these  various  places  are  sorted  and 
made  up  into  outgoing  trains.  When  an  incoming  train 
reaches  the  receiving  track  of  the  yard,  the  locomotive  and 
caboose  are  detached,  inspectors  look  over  the  train  to  see 
if  the  cars  are  in  proper  condition,  and  carders  mark  the 
various  cars  to  indicate  their  destination.  The  train  is  then 
broken  up,  the  various  cars  being  sent  to  tracks  in  the 
classification  yard  to  join  cars  from  other  trains  destined  for 
the  same  place.  The  classification  is  accomplished  either 
altogether  by  switching  locomotives  or  by  pushing  the  cars 
over  a  "hump"  or  artificial  hill,  from  which  the  force  of 
gravity  will  roll  them  to  their  proper  tracks.  From  the 
classification  yard  the  various  cuts  of  cars  are  taken  by 
switching  locomotives  to  freight  houses,  sidings  or  other 
points  within  the  terminal  limits.  In  making  up  outgoing 
trains  the  operation  is  reversed.  From  the  freight  houses 
and  sidings  the  switching  locomotives  bring  the  cars,  which 
are  classified  in  the  same  manner,  the  cars  having  certain 
destinations  grouped  together,  and  pushed  out  on  the  de- 
parture track,  where  an  engine  and  a  caboose  are  hitched 
on  and  the  train  started  on  its  way. 

Somewhere  near  the  center  of  the  large  freight  yards, 


76  RAILROAD  TRANSPORTATION 

which  are  situated  at  points  where  there  are  numerous 
connecting  lines  or  branch  railways,  is  a  transfer  freight 
house.  At  the  transfer  house  "mixed"  cars  of  less  than 
carload  freight,  or  cars  having  packages  for  a  large  num- 
ber of  scattered  points,  are  unloaded,  the  freight  sorted, 
and  "straight"'  cars  made  up,  that  is,  cars  containing  freight 
for  only  one  station  or  at  the  most  for  a  small  number 
of  stations  which  occur  in  order  along  a  particular  division. 
The  necessity  for  the  transfer  house  arises  from  the  fact  that 
at  each  of  the  numerous  freight  houses  in  a  city  small 
amounts  of  freight  are  received  for  a  large  number  of 
places,  and  furthermore  many  cars  from  connecting  lines 
contain  mixed  cargoes.  It  saves  both  time  and  space  to 
collect  these  "mixed"  cars  at  the  transfer  house,  and  load 
the  freight  into  other  cars  with  a  proper  arrangement  of 
the  various  shipments.  Large  freight  yards  cover  several 
hundred  acres  of  ground,  have  many  miles  of  track,  and  are 
capable  of  handling  thousands  of  cars  each  day.  The  opera- 
tion of  a  great  yard  is  one  of  the  most  important  phases  of 
railway  work.  Congestion  in  a  single  yard  impedes  the 
traffic  of  an  entire  railway  system ;  the  speed  with  which 
the  traffic  can  be  handled  in  the  yards  determines  more  than 
any  other  single  factor  the  efficiency  of  the  railroad. 

In  connection  with  the  freight  yard,  and,  if  possible, 
situated  near  the  passenger  coach  yard,  too,  is  the  locomotive 
terminal  where  the  locomotives  are  taken  after  a  road  trip, 
to  be  inspected,  cleaned,  and  furnished  with  fresh  supplies 
of  coal  and  water.  A  "roundhouse"  provides  the  facilities 
necessary  for  light  repairs  to  the  engines.  When  heavy 
repairs  are  needed  the  locomotives  are  sent  to  the  "shops," 
usually  located  at  some  important  divisional  point.  The 
shops  of  the  Pennsylvania  Railroad  at  Altoona  not  only 
repair  locomotives  and  cars,  but  even  build  part  of  the 
company's  rolling  stock. 

In  the  operation  of  trains  between  terminals  the  electric 


CAR,  TERMINAL  AND  OPERATION  77 

telegraph  has  been  the  chief  agency  for  securing  speed 
and  safety.  At  the  time  railroads  were  first  constructed, 
when  a  train  on  a  single  track  line  was  delayed,  an  opposing 
train  was  compelled  to  wait,  sometimes  for  hours,  at  the 
designated  passing  point  until  the  delayed  train  arrived.  By 
using  the  telegraph  to  convey  orders  to  opposing  trains  an- 
other meeting  point  could  be  designated  and  useless  delays 
avoided.  All  regular  trains  have  time-table  schedules,  but 
delays  are,  of  course,  frequent,  and  the  train  dispatcher  is 
constantly  employed  in  expediting  traffic  with  telegraphic 
orders,  regulating  movements  according  to  existing  condi- 
tions. Furthermore  all  extra  and  special  traffic,  of  which 
there  is  a  vast  amount,  is  guided  over  the  line  by  the 
dispatcher.  In  recent  years  the  telephone  has  been  used 
to  an  increasing  extent  for  train  dispatching,  there  being 
80,000  miles  of  road  operated  by  telephone  in  1915. 

An  additional  degree  of  safety  and  a  greater  speed  of 
train  movement  are  secured  by  the  use  of  block  signals.  The 
railroad  is  divided  into  short  units  or  blocks,  at  the  begin- 
ning of  each  of  which  is  a  signal,  which  by  night  or  day  in- 
dicates to  the  engineman  whether  it  is  safe  for  his  train  to 
proceed.  There  are  three  general  classes  of  block  signal 
systems,  the  manual,  the  controlled  manual,  and  the  auto- 
matic. The  manual  block  system  is  one  in  which  the 
signals  are  operated  manually  upon  information  received 
by  telegraph  or  telephone.  The  controlled  manual  block 
system  is  the  same  as  the  manual  except  that  the  signals  at 
the  ends  of  each  block  are  electrically  connected  in  such 
a  way  that  the  cooperation  of  the  signalmen  at  both  ends 
of  the  block  is  required  in  order  that  a  signal  may  be  given 
for  a  train  to  proceed.  The  automatic  system  is  one  in 
which  the  signals  are  operated  by  an  electric  or  pneumatic 
mechanism  actuated  by  the  trains  themselves  in  such  a  way 
that  protection  both  in  the  front  and  in  the  rear  is  afforded. 
The  science  of  signaling  has  been  so  developed  that  by  the 


78  RAILROAD  TRANSPORTATION 

use  of  two  or  more  signal  arms  on  a  single  mast  a  variety  of 
indications  may  be  given  to  approaching  trains,  and  the 
speedy  movement  of  traffic  greatly  facilitated.  At  the  close 
of  the  calendar  year  1919  the  installation  of  block  signals 
had  been  accomplished  on  107,155  miles  of  the  railway  line 
in  the  United  States,  39,149  miles  being  equipped  with 
automatic  signals  and  68,006  with  non-automatic.  Few 
devices  have  contributed  more  to  safety  of  railroad  opera- 
tion than  the  block  signal  installations. 

For  several  years  attempts  have  been  made  to  perfect 
some  device  by  which  a  train  could  be  stopped  automatically 
should  the  engineman  disregard  or  fail  to  see  a  signal  in- 
dicating a  "closed  block."  Numerous  contrivances  have 
been  used  with  a  fair  degree  of  success,  and  on  a  few 
roads  "automatic  stops"  have  been  installed  at  some  points. 
There  is,  however,  a  lack  of  agreement  among  railroad 
officials  and  employees  as  to  the  desirability  of  using  such 
devices,  the  argument  against  them  being  that  any  attempt 
to  shift  the  responsibility  for  safety  to  a  mechanical  device 
inevitably  results  in  impairing  the  vigilance  of  the  train 
crew.  It  is  thought  that  if  automatic  stops  were  universally 
used,  the  enginemen  and  firemen  on  the  locomotives,  placing 
their  dependence  on  the  automatic  control,  would  become 
careless  of  signals,  and  if  accidents  should  happen  because 
of  failure  of  the  automatic  mechanism,  they  would  hold 
themselves  blameless. 

At  crossings,  junction  points  and  other  places  where 
several  currents  of  traffic  converge,  safety  of  operation  is 
secured  by  the  use  of  interlocking  signals  and  switches. 
Interlocked  appliances  are  so  connected  that  their  movements 
must  succeed  each  other  in  a  predetermined  order,  and, 
whenever  a  route  is  cleared  for  one  current  of  traffic,  all 
routes,  the  movements  on  which  would  interfere  with  the 
permitted   movement,   are   automatically  closed. 

An  important  change  in  the  technical  development  of  rail- 


CAR,  TERMINAL  AND  OPERATION 


79 


ways  in  recent  years,  that  has  commanded  much  attention, 
is  the  substitution  of  electricity  for  steam  as  motive  power. 
There  are  three  special  fields  in  which  electrical  power 
can  be  advantageously  used  on  steam  railways  at  the 
present  time :  in  tunnels  and  subways,  in  city  terminal  and 
suburban  service,  and  in  the  handling  of  freight  and  pas- 
senger traffic  on  heavy  mountain  grades. 

In  tunnel  work  smoke  and  gas  render  the  steam  locomo- 
tive highly  objectionable,  and  wherever  possible  steam  rail- 


Electric  Locomotive 

Built  by  the  General   Electric  Company  for  the  Chicago,  Milwaukee 
and   St.   Paul    Railway.     3,000  volt   direct   current   type ;    length 
112    feet ;    weight,    564,000    pounds ;    weight    on   driving    wheels, 
448,000  pounds. 

ways  are  using  electric  locomotives  for  this  service.  The 
Baltimore  and  Ohio  Railroad  has  used  electric  power  in  its 
tunnels  in  the  city  of  Baltimore  since  1895  ;  in  the  Grand 
Trunk  Railroad's  tunnel  under  the  Detroit  River  electric 
locomotives  are  employed ;  and  all  trains  passing  through 
the  Pennsylvania  Railroad  tunnels  into  and  under  New  York 
City  are  hauled  by  eiectric  locomotives. 

The  advantages  of  electric  power  for  use  in  city  terminals 
and  in  suburban  service  arise  not  only  from  the  avoidance  of 
the  smoke  and  gas  of  the  steam  locomotive,  but  also  from 
the  fact  that  electric  power  affords  a  service  of  greater 
flexibility.    The  unit  of  service  may  be  made  small  or  large 


80  RAILROAD  TRANSPORTATION 

at  will.  The  cost  of  operating  a  steam  locomotive  is  about 
the  same  whether  two  or  three  or  a  dozen  coaches  are 
hauled ;  electric  cars,  each  equipped  with  a  motor,  may  be 
operated  singly  or  in  trains,  and  the  cost  of  operation,  as 
far  as  power  and  equipment  are  concerned,  varies  directly 
with  the  number  of  cars  used.  Many  railroads  are  now 
electrifying  their  big  city  terminals.  By  the  electrification 
of  the  New  York  terminals  of  the  New  York  Central  and 
the  New  York,  New  Haven  and  Hartford  railroads  and  by 
the  use  of  electric  locomotives  in  the  Pennsylvania  tunnels, 
the  steam  locomotive  has  been  virtually  banished  from  New 
York  as  well  as  from  the  railway  lines  for  some  distance 
out  of  the  city.  The  Pennsylvania  Railroad  has  electrified, 
for  passenger  services,  a  part  of  its  lines  in  the  Philadelphia 
terminal  district ;  and  in  Chicago  steps  are  being  taken 
toward  the  electrification  of  all  the  lines  within  the  city. 

On  mountain  grades  the  electric  locomotive  possesses  the 
advantage  of  being  able  to  exert  its  maximum  power  for  an 
indefinite  length  of  time,  while  the  steam  locomotive  has 
difficulty  in  maintaining  a  maximum  steam  pressure  during 
a  protracted  period  of  heavy  work.  Another  advantage 
resulting  from  the  use  of  electricity  in  mountainous  sec- 
tions is  that  the  length  of  summit  tunnels  can  be  made 
greater,  and  thus  the  summit  elevation  of  the  line  be  made 
lower,  than  they  might  wisely  be  if  steam  locomotives  were 
to  be  used  in  hauling  trains.  Furthermore,  the  economy 
of  electricity  is  much  greater  when  it  can  be  generated 
by  water  power,  and  in  mountainous  regions  ample  water 
power  is  usually  available.  Two  of  the  transcontinental 
railroads  have  already  utilized  their  opportunities  to  make 
use  of  electric  equipment  in  the  Rocky  Mountain  region, 
and  doubtless  other  roads  will  adopt  the  same  practice. 

In  addition  to  the  above  services,  some  trunk  line  rail- 
roads have  adopted  electric  traction  for  local  traffic  on  sec- 
tions of  the  road  where  the  population  is  dense  and  fre- 


CAR,  TERMINAL  AND  OPERATION 


81 


quent  service  is  necessary,  leaving  only  the  freight  and 
through  passenger  trains  to  be  hauled  by  steam  locomotives. 
The  Rochester  branch  of  the  Erie  Railroad  and  the  main 
line  of  the  West  Shore  Railroad  between  Utica  and  Syracuse 
have  been  electrified,  and  the  New  York,  New  Haven  and 
Hartford  Railroad  uses  electric  power  for  a  considerable 
portion  of  its  passenger  service  in  various  sections  of 
New  England.  By  handling  local  passenger  traffic  in  this 
way  a  more  frequent  service  can  be  given,  and  furthermore, 


Gas-Electric  Motor  Car 
Built  by  the  General  Electric  Company  for  the  Illinois  Central  Rail- 
road.    Length,  70  feet ;  center  and  rear  entrances ;  baggage  com- 
partment 8  feet  in  length. 


the  service  can  be  coordinated  more  closely  with  that  of 
connecting  urban  and  interurban  electric  lines. 

On  branch  lines,  where  the  traffic  is  not  heavy,  many 
steam  railroads  throughout  the  country  have  installed  gas- 
electric  motor  cars,  and  in  some  places  such  cars  are  even 
used  on  main  lines  for  the  purpose  of  giving  more  frequent 
local  passenger  service.  The  use  of  these  cars  saves  the  cost 
of  installing  expensive  electrical  equipment  and  at  the  same 
time  it  affords  an  economical  and  satisfactory  method  of 
handling  small  units  of  traffic. 

The  marvelous  development  of  electric  transportation 
in  recent  years  and  the  manifest  advantages  which  electric 


82  RAILROAD  TRANSPORTATION 

traction  affords  for  certain  varieties  of  service  have  given 
rise  to  the  question  as  to  whether  it  might  not  be  a  wise 
policy  to  equip  all  railway  lines  electrically  and  abandon 
entirely  the  use  of  the  steam  locomotive.  The  results 
of  careful  studies  of  this  problem  by  engineering  and 
transportation  experts  indicate  that  an  early  general  aban- 
donment of  steam  power  would  be  uneconomical.  However, 
as  coal  resources  diminish,  more  and  more  reliance  must  be 
placed  upon  water  power  as  a  source  of  energy  for  the 
work  of  the  world.  Therefore,  while  there  is  no  im- 
mediate prospect  of  general  railway  electrification  it  is 
certain  that  the  use  of  electric  traction  will  have  a  steady 
growth,  and  it  is  not  improbable  that  the  future  will  see 
the  general  substitution  of  electricity  for  steam  in  all 
branches  of  the  transportation  service,  and  the  mechanism  of 
the  railway  will  pass  through  even  more  important  stages 
of  development  than  have  been  witnessed  in  tiie  past. 

REFERENCES 

Tanner,  H.  S.  A  Description  of  the  Canals  and  Railroads  of 
the  United  States  (1840). 

Brown,  William  H.  The  History  of  the  First  Locomotive  in 
America,  from  Original  Documents  and  the  Testimony  of 
Living  Witnesses  (1871).  [A  book  rich  in  historical 
material.] 

Prout,  H.  G.  "Railroad  Construction  and  Equipment,"  in 
Shaler,  The  United  States  of  America,  II,  163-178 
(1894). 

The  American  Railway:  Its  Construction,  Development,  Man- 
agement, and  Appliances  (1897).  [A  collection  of  papers 
by  different  authors.  M.  N.  Forney  has  a  valuable  paper 
on  "American  Locomotives  and  Cars,"  100-148.] 

History  of  the  Baldwin  Locomotive  Works,  1831-1013. 

Hungerford,  Edward.  The  Modem  Railroad  (1911).  [An 
extremely  interesting  popular  description  of  modern  rail- 


CAR,  TERMINAL  AND  OPERATION  83 

way  facilities  in  the  United  States  and  an  account  of  their 
development.] 

Turner  and  Dudley.  Development  in  Air  Brakes  for  Rail- 
roads (1909).  [Published  by  the  Westinghouse  Air  Brake 
Company.] 

Haines,  Henry  S.    Efficient  Railway  Operation  (1919). 

Droege,  James  A.    Freight  Terminals  and  Trains  (1912). 

,  Passenger  Terminals  and  Trains  (1916). 


CHAPTER  VI 

THE   PRESENT   RAILROAD   SYSTEM   OF  THE  UNITED 

STATES 

Railroad  mileage  and  number  of  corporations  in  1014,  84.  The 
three  large  territorial  groups  of  railroads,  85.  Territorial 
grouping  into  seven  sections,  85.  Grouping  by  ownership  and 
control,  88.  Supply  of  railroad  facilities  in  the  United  States 
and  foreign  countries,  94.     References,  96. 

On  December  31,  1918,  there  were  253,528  miles  of  rail- 
road lines  in  the  United  States.  Several  of  these  lines  had 
more  than  one  track,  and  if  the  total  length  of  the  track 
in  the  various  roads  and  in  their  freight  yards  be  taken 
as  the  basis  of  length,  there  were  about  385,000  miles  of 
railroad  track  in  this  country,  exclusive  of  the  mileage 
of  switching  and  terminal  companies.  This  vast  mileage 
was  owned  by  about  1,900  corporations.  Many  of  these 
corporations,  it  is  true,  were  subsidiary  to  others,  but  ac- 
cording to  the  reports  of  the  Interstate  Commerce  Com- 
mission, there  were  over  800  independent  operating  com- 
panies. 

The  railroad  system  of  the  United  States  as  a  whole  is 
too  vast  and  is  composed  of  too  many  parts  to  be  readily 
comprehended.  It  is  impossible,  at  least  for  the  ordinary 
mind,  to  carry  the  details  of  such  a  large  and  intricate  pic- 
ture as  is  presented  by  a  railway  net  comprising  250,000 
miles  of  line  and  spread  over  a  country  3,000  miles  in 
breadth.  By  dividing  the  United  States  into  several  natural 
territorial  sections,  and  by  classifying  the  railroad  lines  or 
systems  according  to  those  sections,  and  by  grouping  the  rail- 
roads according  to  ownership,  it  is  possible  to  obtain  a  gen- 

84 


THE  UNITED  STATES  RAILROAD  SYSTEM      85 

eral  picture  of  what  for  convenience'  sake  we  term  the 
American  railway  system. 

The  most  general  and  frequent  grouping  of  the  railroads 
of  the  United  States  territorially  is  into  three  sections ;  one 
section,  the  eastern  district,  comprising  that  portion  of  the 
country  north  of  the  Ohio  and  Potomac  Rivers  and  east  of 
the  Great  Lakes  and  a  line  from  Chicago  through  Peoria  to 
East  St.  Louis  and  thence  down  the  Mississippi  River  to 
the  mouth  of  the  Ohio  River;  another,  the  southern  district, 
south  of  the  Ohio  and  Potomac  and  east  of  the  Mississippi ; 
and  the  third,  or  western  district,  the  region  west  of  the 
first  two.  A  basis  for  this  grouping  may  be  found  in  well- 
known  differences  in  production,  density  of  population,  and 
other  economic  and  social  conditions  prevailing  in  these 
three  sections  of  our  country.  There  are  also  sufficient  dif- 
ferences in  the  freight  business  of  the  railroads  in  these 
sections  to  cause  a  distinct  classification  of  freight  to  have 
been  worked  out  for  each  of  the  three  regions.  Since 
1910  the  Interstate  Commerce  Commission  has  employed 
this  grouping  for  the  territorial  analysis  of  the  statistics 
of  the  railway  business  of  the  country.  While  this  grouping 
of  the  railroads  of  the  United  States  into  three  sections 
has  been  serviceable  for  purposes  of  freight  classification, 
the  sections  are  so  large  that  further  subdivision  is  necessary. 
Within  each  of  these  large  groups  there  are  distinct  sub- 
divisions, due  in  part  to  diversity  of  physical  conditions, 
and  in  part  to  the  fact  that  the  railroads  in  different 
portions  of  the  country  have  come,  in  a  large  degree, 
to  be  owned  by  a  limited  number  of  groups  of  capital- 
ists. 

The  railway  system  of  the  United  States  as  a  whole 
may  be  divided  into  seven  groups,  each  group  occupying 
a  nearly  although  not  completely  distinct  section  of  the 
country.  Within  some  of  these  sections  the  railroad  system 
may  be  subdivided  into  two  or  more  parts,  dependent  upon 


86  RAILROAD  TRANSPORTATION 

whether  a  general  or  detailed  classification  is  sought  for. 
The  first  of  these  territorial  groups  of  railroads  comprises 
the  New  England  States.  The  railroads  in  this  section 
differ  from  those  of  other  parts  of  the  country,  because 
they  serve  the  region  where  population  is  densest;  where 
the  passenger  business  as  compared  with  the  freight  is 
larger  than  in  any  of  the  other  States,  and  where  the  local 
freight  business  as  contrasted  with  the  through  freight 
is  of  relatively  greater  importance. 

The  region  west  of  New  England  and  the  middle  At- 
lantic seaboard,  north  of  the  Ohio  and  Potomac  Rivers  and 
east  of  the  cities  of  Chicago  and  St.  Louis,  comprises 
another  section  of  the  country  within  which  there  is  con- 
siderable unity  in  the  operation  and  ownership  of  the  rail- 
road systems.  The  railroads  in  this  group  have  the  heaviest 
freight  traffic  of  any  roads  in  the  country.  Most  of  them 
were  built  from  the  East  toward  the  West,  for  the  purpose 
of  bringing  the  agricultural,  forest,  and  mineral  products 
of  the  great  central  West  to  the  Atlantic  seaboard  to 
supply  our  own  and  European  markets,  and  for  the  pur- 
pose of  giving  the  manufacturing  industries  of  the  north- 
eastern section  of  the  United  States  a  western  outlet  for 
the  products  of  the  mills  and  factories.  The  railroads  in  this 
group  are  often  spoken  of  as  the  "trunk  lines,"  because  the 
first  through  or  trunk  lines  in  the  United  States  were 
those  built  to  connect  the  Atlantic  seaboard  with  the 
Great  Lakes  and  the  Ohio  River.  The  corporations  con- 
trolling these  first  trunk  lines  have  extended  their  systems 
to  Chicago  and  St.  Louis,  and  the  term  "trunk  lines"  has 
come  to  be  applied  to  the  roads  between  the  Atlantic  sea- 
board and  the  central  West. 

Comprised  within  this  trunk-line  territory  is  a  distinct 
subdivision  of  lines  whose  business  consists  chiefly  of  trans- 
porting anthracite  coal  from  the  Pennsylvania  mines  to  the 
seaboard.     Some  of  the  hard  coal  mined  in  Pennsylvania 


THE  UNITED  STATES  RAILROAD  SYSTEM      87 

is  handled  by  the  trunk  lines,  but  the  larger  part  of  this 
coal  is  mined  and  transported  by  other  than  the  trunk-line 
companies. 

The  section  south  of  the  Potomac  and  Ohio  and  east  of 
the  Mississippi  is  usually  spoken  of  as  southern  territory. 
The  traffic  conditions  in  southern  territory  differ  from 
those  in  other  parts  of  the  country,  and  it  is  probable 
that  the  railroads  in  this  part  of  the  United  States  will 
always  remain  a  fairly  distinct  group.  The  Alleghany 
Mountains  separate  the  southern  territory  into  two  parts, 
one  of  which  is  tributary  to  the  Gulf  and  the  other  to  the 
Atlantic  seaboard.  To  some  extent  the  lines  in  these  two 
parts  are  operated  under  separate  managements,  but  there 
is  manifest  a  marked  tendency  toward  the  unification  of 
ownership  and  control  of  the  lines  in  both  parts  of  the 
southern  territory. 

To  the  west  and  north  of  Chicago  and  St.  Louis,  and 
including  the  chief  grain-raising  States  of  the  United  States, 
may  be  found  another  group  of  railroads.  The  roads  in  this 
territory  are  called  the  "granger"  lines,  a  term  that  ori- 
ginated between  1870  and  1875,  at  the  time  when  the  farmers 
of  the  central  West  were  organizing  their  so-called 
"granges,"  or  societies.  The  granger  roads  radiate  from 
three  centers,  the  chief  of  which  is  Chicago.  At  the  head 
of  Lake  Superior  is  another  growing  center  of  traffic,  while 
St.  Louis  has  always  been  an  important  point  for  the  collec- 
tion and  distribution  of  the  traffic  from  and  to  the  agricul- 
tural central  West. 

South  and  west  of  St.  Louis  lies  the  southwestern 
territory,  within  which  there  is  a  large  number  of  rail- 
way lines,  some  of  them  having  St.  Louis  and  Memphis 
connections,  and  others  being  more  distinctly  tributary  to 
Gulf  ports.  A  large  part  of  the  roads  in  this  system  were 
formerly  controlled  by  Jay  Gould  and  even  yet  many  of  the 
lines  are  spoken  of  as  the  Gould  roads,  though  the  con- 


88  RAILROAD  TRANSPORTATION 

trol  of  the  territory  is  now  divided  among  several  groups 
of  capitalists. 

West  of  the  sections  occupied  by  the  granger  and  south- 
western lines  lies  the  territory  occupied  by  the  transcon- 
tinental or  Pacific  roads.  These  transcontinental  lines  have 
connections  with  Chicago  and  the  Mississippi,  and  conse- 
quently the  territory  occupied  by  the  transcontinental  lines 
overlaps  to  some  extent  the  granger  and  southwestern 
sections.  The  transcontinental  lines  are  divided  into  two 
rather  distinct  groups,  the  northern  and  southern.  Within 
the  northern  section  are  comprised  the  Great  Northern,  the 
Northern  Pacific  and  the  Chicago,  Milwaukee  and  St.  Paul. 
The  southern  section  includes  the  Union  Pacific,  the  Atchi- 
son, Topeka  and  Santa  Fe,  the  Southern  Pacific,  and  what 
was  formerly  called  the  Gould  transcontinental  line,  made 
up  of  the  Missouri  Pacific,  the  Denver  and  Rio  Grande, 
and  the  Western  Pacific. 

One  of  the  most  interesting  features  of  railway  devel- 
opment in  the  United  States  has  been  the  growth  of  the 
great  railroad  "systems."  The  beginning  of  the  movement 
toward  the  consolidation  of  connecting  lines  was  described 
in  Chapter  III,  and  an  account  was  given  of  the  early  his- 
tory of  the  Pennsylvania  and  the  New  York  Central  sys- 
tems. In  each  of  the  three  large  railroad  regions — Eastern, 
Southern  and  Western — a  few  great  railroad  systems  were 
developed  after  the  Civil  War,  partly  by  the  construction 
of  additional  mileage  by  the  dominating  companies  of  the 
systems,  and  partly  by  the  lease  and  purchase  of  connect- 
ing lines.  Frequently  the  absorbed  lines  were  operated  as 
a  unit  with  the  lines  of  the  controlling  system,  but  in  many 
cases  the  operating  organization  of  subsidiary  roads  was 
retained,  and  though  becoming  a  part  of  the  great  systems, 
they  were  operated  independently.  For  example,  the  Penn- 
sylvania System,  including  the  lines  east  and  west  of  Pitts- 
burgh,  consisted  in    1917   of  about    12,000  miles  of   line. 


UNITED  STATES   RAILROAD   SYSTEM      89 

East  of  Pittsburgh  the  Pennsylvania  Railroad  Company 
operated  directly  4,541  miles,  of  which  it  owned  2,841 
miles,  the  remainder  belonging  to  a  number  of  subsidiary 
non-operating  companies.  In  addition  some  2,000  miles 
were  operated  by  subsidiary  operating  companies,  the  most 
important  of  which  were  the  Long  Island  Railroad  Com- 
pany, the  Philadelphia,  Baltimore  and  Washington  Rail- 
road Company,  and  the  West  Jersey  and  Seashore  Rail- 
road Company.  West  of  Pittsburgh  the  Pennsylvania 
Company,  the  capital  stock  of  which  was  owned  by  the 
Pennsylvania  Railroad  Company,  operated  1,754  miles  of 
line,  all  owned  by  non-operating  companies,  subsidiaries  of 
the  Pennsylvania  Company.  Of  chief  importance  among 
these  subsidiaries  was  the  Pittsburgh,  -Fort  Wayne  and 
Chicago  Railroad  Company,  owning  the  main  line  of  the 
Pennsylvania  System  between  Pittsburgh  and  Chicago.  The 
Pennsylvania  Company  also  controlled,  through  stock  own- 
ership, several  subsidiary  operating  companies,  the  two 
largest  being  the  Pittsburgh,  Cincinnati,  Chicago  and  St. 
Louis  Railroad  Company  and  the  Grand  Rapids  and  Indi- 
ana Railroad  Company.  The  former  of  these  two  corpora- 
tions operated  2,399  miles  of  line.  The  Pennsylvania  lines 
are  now  nearly  all  operated  as  one  great  system. 

All  the  great  systems  were  built  up  and  operated  very 
much  as  the  Pennsylvania  System.  For  a  time  after  the 
development  of  the  great  systems  began  they  were  vigor- 
ously competitive,  not  only  in  services,  but  in  rates  as  well. 
Destructive  rate  wars  carried  on  during  the  seventies 
brought  many  strong  roads  to  bankruptcy.  The  losses 
caused  by  intense  competition  eventually  brought  about  a 
second  phase  of  railroad  consolidation — the  consolidation 
of  competing  lines.  For  a  time  competing  lines  endeavored 
to  maintain  peace  by  the  use  of  rate  agreements  supported 
by  traffic  pools  and  other  devices.  First,  pools,  and  then 
all   formal   rate  agreements,   were  declared   illegal.     After 


00  RAILROAD  TRANSPORTATION 

this  occurred  railroad  financiers  undertook  to  suppress  com- 
petition by  bringing  about  the  consolidation  in  one  way  or 
another  of  the  dominant  railway  systems.  Pursued  at  first 
for  the  purpose  of  bringing  an  end  to  destructive  compe- 
tition, consolidation  was  later  carried  on  extensively  be- 
cause of  the  financial  gains  to  be  derived  through  the  dis- 
tribution and  sale  of  watered  securities.  Either  by  merger, 
the  purchase  of  a  controlling  interest  in  rival  lines,  the 
formation  of  holding  companies,  or  by  the  organization  of 
"communities  of  interest"  and  interlocking  directorates, 
great  regional  combinations  were  built  up.  The  period  of 
greatest  activity  in  railroad  consolidation  extended  from 
1893  to  1903.  For  a  time  it  seemed  that  the  combination 
process  would  be  carried  to  such  an  extent  that  there  would 
be  a  territorial  division  of  the  railroads  of  the  United 
States  among  a  comparatively  small  number  of  powerful 
financial  interests. 

In  New  England  the  New  York,  New  Haven  and  Hart- 
ford Railroad,  under  the  direction  of  the  Morgan  banking 
interests,  secured  control  of  nearly  all  the  leading  trans- 
portation agencies,  including  steam  and  electric  railways 
and  steamship  lines.  The  Pennsylvania  Railroad  bought 
substantial  blocks  of  stock  in  the  Chesapeake  and  Ohio, 
the  Baltimore  and  Ohio,  and  the  Norfolk  and  Western. 
The  Baltimore  and  Ohio  invested  heavily  in  the  Reading 
Company,  which  controlled  the  Philadelphia  and  Reading 
Railroad.  The  Baltimore  and  Ohio  shared  its  purchase  of 
Reading  stock  with  the  Lake  Shore  and  Michigan  Southern, 
a  subsidiary  of  the  New  York  Central.  The  New  York, 
New  Haven  and  Hartford  was  jointly  interested  with  the 
Pennsylvania  and  the  New  York  Central  in  various  railroad 
properties.  In  this  way  the  most  powerful  systems  of  the 
Eastern  territory  reached  a  position  which  enabled  them  to 
exercise  a  dominating  influence. 

In  the  South  the  Morgan  banking  interests  secured  con- 


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UNITED  STATES  RAILROAD  SYSTEM      91 

trol  of  the  Southern  system  and  the  Atlantic  Coast  Line, 
the  latter  controlling  in  turn  the  Louisville  and  Nashville. 
Joint  control  of  smaller  lines  by  the  Atlantic  Coast  Line 
and  the  Seaboard  Air  Line  established  a  working  alliance 
of  these  interests.  The  other  railroads  of  the  South  were 
brought  into  harmonious  relations  with  the  Morgan  roads, 
and  the  important  coastwise  steamship  lines  were  also 
brought  under  railroad  control,  so  that  by  1900  the  leading 
transportation  interests  of  the  South  were  fully  unified. 

West  of  the  Mississippi  was  the  scene  of  the  operations 
of  E.  H.  Harriman,  probably  the  most  astute  and  skilful 
of  all  the  great  railroad  financiers.  He  built  up  the  pow- 
erful Union  Pacific-Southern  Pacific  combination,  and  for 
a  time  was  on  the  verge  of  securing  control  of  the  North- 
ern Pacific  and  the  Chicago,  Burlington  and  Quincy.  These 
two  systems,  however,  together  with  the  Great  Northern, 
eventually  came  under  the  control  of  the  James  J.  Hill  in- 
terests. The  Gould  interests  built  up  a  system,  the  most 
important  constituent  parts  of  which  were  the  Wabash,  the 
Missouri  Pacific,  the  Denver  and  Rio-Grande,  the  Western 
Pacific,  the  Texas  and  Pacific,  and  the  St.  Louis,  Iron 
Mountain  and  Southern.  The  Rock  Island,  the  St.  Paul 
and  the  Santa  Fe  systems  were  the  other  leading  railroad 
systems  of  the  West.  Early  in  the  twentieth  century  the 
great  railroad  combinations  were  subjected  to  attack  under 
the  Sherman  Antitrust  Law.  The  Northern  Securities 
Company,  a  holding  corporation,  which  the  Harriman  and 
Hill  interests  organized  in  order  to  pool  their  interests 
after  their  struggle  for  the  control  of  the  Northern  Pacific, 
the  Supreme  Court  declared  in  1904  to  be  an  illegal  combi- 
nation. In  191 2  the  Supreme  Court  ordered  the  Union 
Pacific  to  dispose  of  its  Southern  Pacific  stock.  The  New 
Haven  combination  was  likewise  broken  up  by  the  Federal 
courts.  Speculative  financial  operations  and  mismanage- 
ment resulted  in  the  collapse  and  disintegration  of  the  Gould 


92  RAILROAD   TRANSPORTATION 

and  the  Rock  Island  combinations,  many  of  their  constit- 
uent roads  being  forced  into  bankruptcy. 

So  unpopular  did  railroad  combination  become  that  even- 
tually Congress  enacted  legislation  designed  to  break  up 
existing  railroad  combinations  and  to  prevent  any  further 
progress  of  the  movement.  The  Panama  Canal  Act  of  1912 
contained  provisions  framed  to  prevent  the  control  of  do- 
mestic water  transportation  lines  by  competing  railroad 
companies.  The  Clayton  Antitrust  Act  of  1914  specifically 
forbade  a  corporation  engaged  in  commerce  "to  acquire, 
directly  or  indirectly,  the  whole  or  any  part  of  the  stock 
or  other  share  capital  of  another  corporation  engaged  also 
in  commerce,  when  the  effect  of  such  acquisition  may  be 
to  substantially  lessen  competition  between  the  corporation 
whose  stock  is  so  acquired,  and  the  corporation  making 
the  acquisition."  Under  the  influence  of  adverse  legisla- 
tion and  judicial  decrees  rendered  under  the  Sherman  law 
of  1890,  and  because  of  financial  difficulties,  the  large  rail- 
road combinations  disintegrated.  The  Eastern  roads  grad- 
ually disposed  of  many  stocks  held  in  competing  parallel 
lines  and  the  process  of  regional  consolidation  was  brought 
to  an  end.  The  older  and  stronger  "systems"  continued, 
and  not  all  the  combinations,  consisting  of  separate  operat- 
ing companies  but  dominated  by  the  same  financial  inter- 
ests, have  been  dissolved.  The  Hill  system  is  still  intact, 
and  the  Morgan  banking  interests  still  control  most  of  the 
roads  in  Southern  Territory.  The  maps  following  page 
94  show  the  stronger  railway  systems  of  the  country. 

The  process  of  railroad  consolidation  is  by  no  means 
finished.  The  financial  reverses  which  the  railroads  suf- 
fered during  the  four  years  following  1913  and  the  experi- 
ment with  government  operation  during  the  war  caused  a 
decided  change  of  view  with  respect  to  the  whole  problem 
of  railroad  regulation.  The  new  features  of  the  railroad 
policy,  embodied  in  the  Transportation  Act  of  1920,  were 


UNITED  STATES  RAILROAD  SYSTEM      93 

based  primarily  upon  the  obvious  necessity  of  adopting 
measures  to  insure  reasonable  earnings  to  all  railroad  cor- 
porations. The  problem  of  securing  adequate  net  income 
for  all  roads,  without  permitting  any  single  road  to  earn 
substantially  in  excess  of  a  fair  return,  can  best  be  solved, 
it  seems,  by  bringing  about  the  consolidation  of  "weak" 
lines  with  "strong."  The  Transportation  Act  of  1920  pro- 
vides that  the  Interstate  Commerce  Commission  may  per- 
mit any  carrier  subject  to  the  Interstate  Commerce  Act  to 
acquire  the  control  of  any  other  such  carrier,  either  by 
lease  or  by  the  purchase  of  stock,  or  in  any  other  manner 
not  involving  the  consolidation  of  such  carriers  into  a  single 
system  for  ownership  and  operation.  The  law  also  pro- 
vides that  the  Commission  shall  "prepare  and  adopt  a  plan 
for  the  consolidation  of  the  railway  properties  of  the  con- 
tinental United  States  into  a  limited  number  of  systems." 
In  the  division  of  such  railways  into  such  systems  under 
such  plan,  competition  shall  be  preserved  as  fully  as  pos- 
sible. .  .  ."  As  the  bill  for  this  Act  was  originally  worded 
it  provided  for  the  compulsory  consolidation  of  the  rail- 
roads into  not  less  than  20  or  more  than  35  systems.  The 
compulsory  feature  of  the  bill  was  dropped,  but  there  is 
yet  a  strong  sentiment  that  it  should  be  enacted  into  law 
and  attempts  have  already  been  made  to  have  Congress  take 
action  to  that  effect.  A  number  of  plans  for  consolida- 
tion have  been  proposed,  one  of  the  most  interesting  and 
suggestive  of  which  is  that  worked  out  by  Mr.  John  E. 
Oldham  of  Boston,  who  proposed  that  the  roads  be  divided 
into  14  great  systems,  4  in  Eastern  territory,  3  in  Southern 
and  7  in  Western.  The  Interstate  Commerce  Commission 
has  published  a  tentative  plan  of  consolidation,  proposing 
19  systems.  It  is  preparing  to  hold  public  hearings.  The 
Transportation  Act  permits  voluntary  consolidations  which 
are  in  conformity  with  the  final  plan  of  the  Commission. 
It  is  not  impossible  that  Congress  will  ultimately  adopt 


9*  RAILROAD  TRANSPORTATION 

a  scheme  of  regional  consolidations  instead  of  the  plan  of 
having  the  roads  organized  into  a  limited  number  of  com- 
petitive systems,  though  the  fact  that  regional  consolida- 
tions would  tend  to  eliminate  all  competition  which  serves 
to  stimulate  efficiency  of  service  tends  to  weaken  the  argu- 
ments in  favor  of  regional  grouping. 

Although  the  United  States  includes  a  vast  stretch  of  ter- 
ritory, the  country  is  well  supplied  with  railroad  facilities. 
There  are  two  ways  by  which  the  supply  of  railway  facili- 
ties is  most  frequently  measured.  One  of  the  methods  is 
to  ascertain  the  ratio  between  the  railroad  mileage  and  tht 
number  of  square  miles  of  territory  in  the  country  or  in 
the  section  being  considered — that  is,  to  determine  the  num- 
ber of  miles  of  railroad  per  ioo  square  miles  of  territory. 
Another  measure  is  found  in  the  ratio  of  mileage  to  popula- 
tion, or  in  the  number  of  miles  of  railroad  per  10,000  in- 
habitants. The  number  of  miles  of  railroad  per  100  square 
miles  is  greater  in  the  "trunk  line"  territory — the  section 
between  New  England  and  Chicago  and  St.  Louis — than  in 
any  other  part  of  the  United  States,  the  number  being 
about  20.4;  the  New  England  district  comes  second,  with 
12.7  miles  per  100  square  miles  of  territory;  and  the  south- 
ern district  third,  with  10.65  5  after  which  comes  the  granger 
territory,  then  the  southwestern,  and  finally  the  western 
sections  served  by  the  transcontinental  lines.  In  the  United 
States  as  a  whole  there  are  8.5  miles  of  railroad  for  each 
100  square  miles  of  territory. 

Of  the  individual  States,  New  Jersey  ranks  first  in  the 
railway  mileage  per  100  square  miles,  having  30.8  miles 
for  each  section  of  that  area ;  Massachusetts  comes  second, 
with  a  ratio  of  26.5 ;  Pennsylvania  third,  with  a  ratio  of 
26;  after  which  come  Ohio,  Illinois,  Indiana,  Connecticut, 
Rhode  Island  and  New  York. 

The  ratio  of  railroad  mileage  to  population  is  very  dif- 
ferent from  the  ratio  between  mileage  and  territory.     The 


UNITED  STATES  RAILROAD  SYSTEM      95 

State  of  Nevada,  with  only  2,418  miles  of  road,  has  247 
miles  per  10,000  inhabitants,  while  the  State  of  Illinois,  with 
over  12,000  miles  of  railroad,  has  less  than  21  miles  per 
10,000  people.  Massachusetts,  with  next  to  the  longest  mile- 
age per  100  square  miles  of  territory,  is  so  thickly  populated 
that  she  has  only  5.9  miles  of  railroad  for  each  10,000 
residents.  The  people  of  Massachusetts,  however,  are  es- 
pecially well  supplied  with  railroad  facilities.  The  railroad 
net  is  thickly  woven  and  there  are  no  people  more  than  a 
few  miles  distant  from  a  well-equipped  rail  line. 

The  people  living  in  the  eastern  half  of  the  United  States 
are  more  adequately  supplied  with  railroad  facilities  than 
are  the  people  of  some  of  the  European  countries ;  taking 
Europe  as  a  whole,  there  are  but  5.63  miles  of  railroad  for 
each  100  square  miles  of  territory.  In  Belgium  there  are 
47.9  miles  for  each  such  area,  in  Great  Britain  and  Ireland 
the  number  of  miles  is  19.3,  and  in  Germany  about  18.9 
per  100  square  miles.  In  European  Russia,  however,  there 
are  only  1.8  miles  per  100  square  miles,  and  in  Sweden 
only  5  miles.  Western  Europe  is  better  supplied  territori- 
ally with  railroads  than  the  United  States  is  even  in  the 
eastern  part.  Eastern  and  northern  Europe,  like  the  west- 
ern third  of  the  United  States,  have  a  relatively  small 
supply  of  railroads. 

Measured  by  the  ratio  of  railway  mileage  to  population, 
the  supply  of  railroad  facilities  enjoyed  by  the  people  of 
the  United  States  is  greater  than  that  possessed  by  Euro- 
peans. Taking  Europe  as  a  whole,  there  are  only  4.84  miles 
of  railroad  for  each  10,000  people,  which  is  but  a  little  more 
than  one-sixth  of  the  figure  for  the  United  States,  where 
the  ratio  is  26  to  10,000.  In  Great  Britain  and  Ireland 
there  are  5.1  miles  of  railroad  per  10,000  inhabitants,  in 
Germany  about  6  miles,  in  France  8.1  miles,  and  in  Swit- 
zerland 8.4  miles.  By  comparing  these  ratios  with  those 
for  the  States  of  the  United  States  it  will  be  seen  that  the 


96  RAILROAD   TRANSPORTATION 

person   living  in  this  country  is  served  by  a  considerably 
greater  length  of  railroad. 

REFERENCES 

Newcomb,  H.  T.     "The  Recent  Great  Railway  Combinations," 

in  Review  of  Reviews,  XXIV,  July  1901. 
Hull,  C.  H.     "Railway  Alliance  and  Trade  Districts,"  in  The 

International  Monthly,  III,  June  1901. 
Interstate   Commerce   Commission.     Statistics  of  Railways  in 

the  United  States  (annual). 
.    Intercorporate  Relationships  of  Railways  in  the  United 

States  as  of  June  30,  1006  (Special  Report  No.  1,  1908). 
Report  of  Industrial  Commission,  XIX,  304-322   (1902). 
Snyder,  C.     American  Raihvays  as  Investments   (i9°7)- 
American  Year  Book   (Annual,  1911-1920). 


CHAPTER  VII 

THE   RAILROAD   CORPORATION   AND   ITS   CHARTER 

The  corporation  defined,  97.  The  corporation  and  partnership  dis- 
tinguished, 98.  The  railroad  company  is  a  quasi-public  private 
corporation,  99.  The  power  of  government  to  regulate  rail- 
roads, 100.  Railroad  charters,  102.  Size  of  railway  corpora- 
tions, 104.     Insolvent  corporations,  106.     References,  107. 

The  agency  by  which  the  railroad  machine  is  managed 
and  the  railway  system  just  described  is  operated  is  the 
corporation.  The  product  resulting  from  the  operation  of 
the  machine  is  the  transportation  service.  The  executor  of 
the  service  is  the  corporation. 

Nothing  has  been  more  characteristic  of  the  develop- 
ment of  industry  during  the  past  50  years  than  the  sub- 
stitution of  the  corporation  for  individual  and  partner- 
ship management  of  business  and  the  development  of  the 
corporations  thus  substituted  into  great  and  powerful  organ- 
izations. In  no  other  line  of  activity  has  the  corporation 
developed  in  a  more  typical  manner  than  in  the  railroad 
business,  and  a  brief  study  of  the  railroad  corporation  as 
it  exists  today  will  be  remunerative  not  only  to  the  student 
of  railway  affairs,  but  to  the  student  of  economic  activity 
in  general. 

In  his  book  on  the  Law  of  Personal  Property,  Theo- 
dore Dwight  defined  a  corporation  as  "an  artificial  per- 
son, created  by  law,  having  a  continuity  of  existence, 
either  definite  or  indefinite,  and  capacity  to  do  authorized 
acts,  and  capable,  however  numerous  the  persons  that  com- 
pose it  may  be,  of  acting  as  a  single  individual."  As 
defined  by  Elliott  in  his  standard  work  on  Railway  Law, 

97 


98  RAILROAD  TRANSPORTATION 

a  corporation  is  "a  body  consisting  of  one  or  more  persons, 
established  by  law  for  certain  specific  purposes,  with  the 
capacity  of  succession  and  with  special  privileges  not  pos- 
sessed by  individuals,  yet  acting  in  many  respects  as  an 
individual." 

As  these  definitions  state,  a  corporation  is  a  creation 
of  law,  by  means  of  which  several  individuals  may  act 
as  one  person  in  the  performance  of  certain  acts  which 
they  are  authorized  to  execute  by  the  law  creating  the 
corporation.  This  "artificial  person"  called  the  corporation 
has  a  continuity  of  existence  which  may  be  either  for  a 
limited  and  definite  period  of  years  or  for  an  indefinite 
time. 

A  partnership  is  a  business  organization  consisting  of 
two  or  more  individuals  who  contract  with  each  other  for 
the  transaction  of  a  certain  line  of  business.  The  organ- 
ization thus  created  terminates  with  the  death  of  either 
or  any  member  of  the  partnership,  and  the  obligations 
contracted  by  the  firm  in  carrying  on  its  business  become 
the  obligations  of  each  partner.  In  this  respect  the  part- 
nership differs  from  the  corporation  in  that  the  stock- 
holders of  the  corporation  are  usually  liable  only  to  the 
amount  of  their  investment  or  holdings  of  stock  in  the 
organization.  In  some  cases  the  stockholder  in  a  corpora- 
tion may  be  liable  to  twice  the  amount  of  his  stock,  but  that 
is  not  usual. 

The  persons  composing  the  corporation  are  the  stock- 
holders, and  in  the  larger  railroad  and  industrial  corpora- 
tions of  today  they  may  number  thousands.  Inasmuch  as 
it  is  impossible  for  a  large  body  of  stockholders  personally 
to  exercise  management  of  the  business  of  the  corporation, 
it  is  usual  for  them  to  have  annual  meetings  at  which  a 
limited  number  of  persons  are  elected  directors.  The  di- 
rectors thus  chosen  usually  elect  a  president,  vice  president, 
treasurer,  secretary,  and  various  other  subordinate  officers, 


RAILROAD  CORPORATION  AND  CHARTER     99 

whose  business  it  is  to  carry  on  the  details  of  the  work 
under  the  general  supervision  and  control  of  the  directors. 
The  subordinate  officers  are  responsible  to  the  president ;  he 
is  under  the  control  of  the  directors,  and  they  are  held  re- 
sponsible to  the  stockholders,  to  whom  they  report  at  the 
regular  meetings. 

Corporations  are  of  two  general  kinds :  private  and  public. 
The  ordinary  manufacturing  concern  is  an  example  of 
the  former  kind,  while  the  city  or  borough  government  is 
an  instance  of  the  latter.  The  railroad  corporation  par- 
takes of  the  nature  of  both  kinds.  Legally  it  is  to  be  classed 
as  a  private  corporation,  but  the  services  it  performs  are  of 
a  public  nature.  The  railroad  corporation  is  created  to  per- 
form a  service  which  in  some  countries  is  in  the  hands  of 
the  government,  and  which  the  various  States  and  the 
National  Government  in  this  country  would  need  to  per- 
form if  the  railroad  corporations  were  not  created  by  the 
government  to  carry  on  the  business  of  transportation. 

The  special  characteristics  of  the  railroad  corporation 
and  the  private  and  public  nature  of  the  services  it  per- 
forms are  well  given  by  Elliott  in  the  work  just  referred 
to.     He  says : 

A  railroad  company  or  corporation  is  usually  regarded  as  a 
private  corporation,  and  justly  so  as  contrasted  with  a  strictly 
public  corporation,  such  as  a  city,  county,  township,  or  the  like 
governmental  subdivisions,  but  it  is  not  a  private  corporation  in 
the  strict  sense  that  an  ordinary  business  corporation  is,  for  it 
is  charged  with  duties  of  a  public  nature  that  distinguish  it  from 
a  purely  and  strictly  private  corporation.  In  many  respects  a 
railroad  corporation  is  a  private  corporation  in  all  that  the  term 
implies,  but  in  other  respects  it  differs  from  a  corporation  upon 
which  no  public  duties  are  imposed.  .  .  .  The  doctrine  of 
Chief  Justice  Hale,  that  "when  private  property  is  affected  with 
a  public  interest  it  ceases  to  be  juris  privati  only,"  applies  to  a 
railroad  corporation.  It  is  not  to  be  understood,  however,  from 
the  fact  that  the  property  of  a  railroad  company  is  devoted  to  a 


100  RAILROAD  TRANSPORTATION 

public  use  or  "affected  with  a  public  interest,"  that  it  can  be 
treated  as  a  public  corporation;  on  the  contrary,  a  railroad  cor- 
poration is  classed  as  a  private  corporation,  and  its  strictly 
private  rights  are  as  much  beyond  legislative  control  as  are 
the  rights  of  a  purely  private  corporation. 

The  fact  that  a  railroad  is  a  quasi-public  corporation  is 
of  great  consequence,  because  such  corporations  may  be 
subjected  to  very  detailed  regulation  by  the  state.  Being 
created  by  the  state  to  perform  a  service  which  the  state 
would  otherwise  be  obliged  to  carry  on,  the  corporation  may 
be  compelled  by  the  state  to  perform  the  service  according 
to  rules  prescribed  by  public  authority,  whose  control  may 
and  often  does  go  so  far  as  to  fix  the  rates  which  the  cor- 
poration may  charge  for  what  it  does.  It  will  be  found  that 
there  are  no  corporations  or  individuals  engaged  in  the 
business  of  transportation  for  the  public  whose  charges  are 
not  subject  to  governmental  regulation. 

The  power  of  positive  regulation  of  the  rates  and  services 
of  transportation  companies  is  vested  in  the  legislative 
branch  of  the  government.  It  follows  that  under  our  form 
of  government,  with  a  national  legislative  body  and  a  legis- 
lature for  each  State,  railway  charges  and  services  are  sub- 
ject to  regulation  by  a  number  of  agencies.  However,  the 
powers  of  the  States  and  of  the  National  Government  apply 
to  separate  fields.  Congress  alone,  by  a  provision  of  the 
Federal  Constitution,  has  the  power  to  regulate  interstate 
commerce,  and  the  State  legislature  is  limited  in  the  exer- 
cise of  its  rate-making  authority  to  traffic  which  does  not 
cross  the  boundaries  of  the  State.  Until  recently  it  was 
thought  that  the  rate-making  powers  of  the  State  legisla- 
tures and  of  Congress  were  mutually  exclusive,  that  is,  that 
the  States  had  full  power  over  rates  on  all  intrastate  traffic 
and  that  Congress  had  power  to  regulate  rates  on  interstate 
traffic  only.     However,  the  Supreme  Court  decided  in  the 


RAILROAD  CORPORATION  AND  CHARTER  101 

Minnesota  Rate  case,  in  191 3,  and  in  the  Shreveport,  Louisi- 
ana, Rate  case,  in  1914,  that  Congress  has  power,  when  it 
chooses  to  exercise  it,  to  overrule  any  action  a  State  legis- 
lature may  take  as  regards  rates  on  intrastate  traffic  when 
such  action  indirectly  regulates  interstate  trade. 

In  framing  the  Transportation  Act  of  1920  Congress 
undertook  to  exercise  the  authority  which  the  Supreme 
Court  declared  it  to  possess.  The  Act  provides  that  when- 
ever rates  or  regulations  imposed  upon  railroads  by  State 
authority  cause  any  undue  or  unjust  discrimination  against 
interstate  or  foreign  commerce  the  Interstate  Commerce 
Commission  may  prescribe  rates  or  regulations  which  will 
remove  such  discrimination,  and  that  the  carriers  shall  ob- 
serve such  rates  or  regulations  "the  law  of  any  State  or 
the  decision  or  order  of  any  State  authority  to  the  contrary 
notwithstanding."  This  law  greatly  limits  the  power  of 
the  States  over  railroad  charges.  The  constitutionality  of 
such  a  sweeping  infringement  upon  State  authority  has 
been  questioned,  but  there  seems  little  reason  to  doubt  that 
the  law  will  be  sustained  by  the  Supreme  Court. 

Though  legislatures  have  the  power  to  make  rates,  their 
acts  are  subject  to  review  in  the  courts.  The  right  of  the 
courts  to  review  a  rate  established  by  a  legislative  body 
arises  from  the  fact  that  the  judicial  branch  of  the  govern- 
ment in  the  United  States  is  clothed  with  the  power  to  de- 
termine whether  acts  of  the  legislature  are  in  conformity 
with  the  written  constitutions.  The  fifth  amendment  to  the 
Federal  Constitution,  and  all  State  constitutions  provide 
that  no  person  shall  be  "deprived  of  life,  liberty  or  property 
without  due  process  of  law."  The  word  "property"  has  been 
construed  to  include  within  the  scope  of  its  meaning  not 
merely  the  possession  of  property,  but  also  the  right  to 
enjoy  a  reasonable  compensation  for  the  use  of  property. 
Consequently  if  a  rate  imposed  by  legislative  enactment  is 
thought  by  the  court  to  be  so  low  that  its  enforcement  would 


102  RAILROAD  TRANSPORTATION 

result  in  depriving  the  carrier  of  a  reasonable  compensation 
for  the  use  of  its  property,  the  law  establishing  such  a 
rate  is  held  to  be  void.  Furthermore  rates  established  by  a 
commission  may  be  overruled  by  a  court  not  only  on  the 
grounds  of  unconstitutionality,  but  also  on  the  grounds 
that  the  commission  has  exceeded  the  authority  conferred 
upon  it  by  the  statute  in  which  its  powers  are  specified.  A 
court  has  no  power  to  make  a  rate.  The  exercise  of  the 
rate-making  power  is  a  legislative  function ;  the  court  may 
decide  only  whether  particular  rates  brought  before  it  in 
appropriate  proceedings  have  been  made  in  conformity 
with  the  statutory  and  constitutional  limitations  imposed  on 
the  bodies  by  which  the  rates  were  made. 

State  courts  have  the  power  to  review  the  acts  of  State 
legislatures  and  the  orders  of  State  commissions  affecting 
intrastate  traffic.  Federal  courts  have  the  power  to  review 
not  only  the  acts  of  Congress  and  the  orders  of  the  Federal 
commission  affecting  interstate  trade,  but  also  the  rates 
imposed  by  the  State  on  intrastate  traffic.  The  power  of 
the  Federal  courts  to  review  rates  fixed  by  state  authority 
is  derived  from  the  fourteenth  amendment  to  the  Federal 
Constitution,  which  declares  that  no  "State"  shall  "deprive 
any  person  of  life,  liberty  or  property  without  due  process 
of  law,"  thus  giving  a  carrier  the  right  to  bring  an  action 
before  a  Federal  court,  either  directly  or  on  appeal  from 
a  State  court,  to  test  the  validity  of  a  rate  imposed  by  a 
State  law.  Federal  courts  may  also  determine  whether 
Congress  has  acted  within  its  constitutional  powers  when  it 
interferes  with  regulations  imposed  by  a  State  on  intra- 
state commerce ;  that  is,  the  question  of  whether  certain  in- 
trastate commerce  is  of  such  a  nature  that  its  regulation 
constitutes  a  regulation  of  interstate  commerce  is  a  ques- 
tion for  judicial  determination. 

The  railroad  company  derives  its  powers  from  a  charter 
granted   to   it  by   the   state.     In   the  United   States  most 


RAILROAD  CORPORATION  AND  CHARTER      103 

railroad  and  other  charters  are  derived  from  the  State 
governments,  but  the  National  Government  has  the  au- 
thority to  incorporate  railroad  companies  and  grant  them 
charters ;  indeed,  in  the  case  of  some  of  the  Pacific  railroads 
the  charters  were  derived  from  the  United  States.  Incor- 
poration may  take  place  either  by  a  special  act  of  the 
legislature  of  the  State,  or  in  accordance  with  general 
laws.  Formerly  nearly  all  charters  were  special  acts  of 
the  legislature,  but  that  practice  led  to  corruption  and 
favoritism,  and  most  States  have  enacted  general  incor- 
poration laws.  Indeed  the  constitutions  of  many  States 
prohibit  the  granting  of  special  charters. 

The  railway  charters  granted  to  the  companies  that  con- 
structed the  first  railroads  in  this  country  were  very  similar 
to  the  charters  that  had  previously  been  granted  to  the 
companies  that  had  constructed  turnpikes  and  tollroads ; 
indeed,  it  was  supposed  at  the  beginning  of  railroad  construc- 
tion that  the  railroad  was  merely  an  improved  highway 
upon  which  any  individual  might  run  his  own  car.  A  few 
years'  experience  showed  that  it  was  not  practicable  to 
manage  a  railroad  in  that  way,  and  that  it  was  necessary 
for  the  business  done  over  the  road  to  be  under  one 
centralized  management.  Railroad  charters  contained  care- 
fully drawn  provisions  in  regard  to  the  tolls  that  were  to 
be  charged  individual  users  of  the  road.  Some  effort 
was  made  to  protect  the  public  interests  by  stipulating  that 
when  the  earnings  received  by  the  railroad  companies  should 
exceed  a  fixed  annual  percentage  the  State  might  reduce  the 
charges.  In  general,  however,  the  charters  granted  in  this 
country  afforded  very  inadequate  protection  to  the  public. 
The  experience  of  the  United  States  in  this  regard  differed 
from  that  of  European  countries,  where  the  state  took 
special  pains  in  granting  its  charters  to  provide  for  the 
detailed  regulation  of  the  service*  to  be  performed.  In  this 
country  the  States  were  so  desirous  of  securing  railroad* 


104  RAILROAD  TRANSPORTATION 

that  very  few  exactions  were  imposed  upon  any  company 
that  was  willing  to  undertake  a  work  deemed  to  be  of 
great  benefit  to  the  State  and  to  the  general  public. 

It  will  be  found  that  this  lax  and  indiscriminate  char- 
tering of  railway  companies  was  responsible  in  part  for 
numerous  abuses  in  the  railway  service.  In  course  of  time 
"the  railway  question"  came  to  occupy  a  very  prominent 
place  in  public  discussions,  and  about  1870  the  States 
undertook  in  a  vigorous  way  to  assume  a  degree  of  regula- 
tion of  the  railroads,  for  which  they  should  have  made,  but 
did  not  make,  provision  in  the  charters  they  had  previously 
granted. 

In  most  foreign  countries  the  railroads  are  chartered 
by  the  central  government,"  but  in  the  United  States  each 
one  of  the  States  has  and  exercises  the  power  to  incor- 
porate railway  companies.  If  the  laws  of  the  several 
States  regarding  incorporation  were  uniform,  and  if  the 
provisions  in  the  charters  were  alike  or  nearly  so,  this  prac- 
tice would  not  be  disadvantageous ;  but  as  a  matter  of  fact 
the  laws  and  practices  are  not  uniform,  some  States  being 
much  stricter  than  others.  This  fact  has  made  the  problem 
of  the  regulation  of  transportation  by  the  several  States 
a  more  difficult  one  than  it  otherwise  would  have  been, 
and  is  one  of  the  reasons  why  it  is  desirable  for  the  United 
States  Government  to  exercise  its  power  to  regulate  com- 
merce among  the  several  States. 

The  railroad  companies  of  today  are  large  and  powerful 
organizations.  The  Pennsylvania  system  of  railroads,  for 
example,  comprises  many  corporations,  but  they  are  prac- 
tically under  one  management.  The  people  who  manage 
the  Pennsylvania  interests  have  more  than  $i,ck>o,ooo,ooo 
under  their  control,  and  there  are  other  railway  systems 
in  the  United  States  nearly  as  large  as  the  Pennsylvania. 
The  capital  stock  of  each  of  the  large  railway  corpora- 
tions is  distributed  among  a  large  number  of  owners.    Ac- 


RAILROAD  CORPORATION  AND  CHARTER      105 

cording  to  statistics  collected  by  the  Bureau  of  Railway 
Economics  at  Washington,  on  December  31,  1917,  the  stock- 
holders of  Class  I  railroads,  which  are  those  having  annual 
operating  revenues  above  $1,000,000,  numbered  627,930,  of 
whom  332,624  were  stockholders  of  the  railways  of  the 
eastern  district,  53,226  were  stockholders  of  the  railways  of 
the  southern  district  and  242,080  were  stockholders  of  the 
railways  of  the  western  district.  Class  I  railways  with 
their  subsidiaries  operate  approximately  90  per  cent  of  the 
railway  mileage  of  the  United  States,  handle  more  than 
95  per  cent  of  the  traffic  and  receive  more  than  95  per  cent 
of  the  revenues.  A  medium  sized  railroad  company,  such 
as  the  Illinois  Central,  illustrates  in  an  excellent  manner 
the  distribution  of  the  ownership  among  the  stockholders. 
On  August  10,  1914,  it  had  10,872  stockholders,  4,271  of 
whom  owned  from  1  to  10  shares,  and  4,946  of  whom  owned 
from  11  to  100  shares.  Fully  half  of  the  1,092,936  shares 
of  stock  outstanding  were  owned  in  lots  of  $50,000  or  less. 
On  January  I,  1921,  the  Pennsylvania  Railroad  Company 
had  outstanding  9,985,314  shares  with  a  par  value  of  $50 
a  share.  They  were  distributed  among  133.068  stock- 
holders, the  average  holding  per  stockholder  being  75.11 
shares.  Of  the  entire  number  of  stockholders  63,639  or 
47.82  per  cent  were  women. 

The  railroad  corporations  become  larger  every  year,  and 
with  the  increase  in  the  amount  of  railroad  securities  the 
distribution  of  ownership  is  continually  widened.  Never- 
theless the  control  of  railway  property  is  in  the  hands 
of  a  relatively  small  number  of  groups  of  capitalists.  Each 
group  of  capitalists  comprises  a  multitude  of  individual 
owners,  the  concentration  of  control  being  the  result  of  the 
delegation  of  authority  to  the  limited  number  of  financial 
leaders  in  whom  investors  have  especial  confidence.  It  is 
not  necessary  for  an  individual  to  own  a  majority  of  the 
stock  in  a  corporation  to  obtain  the  practical  control.    As 


106  RAILROAD  TRANSPORTATION 

the  corporations  become  larger  and  the  stockholders  be- 
come more  widely  distributed,  control  by  the  individuals 
or  groups  of  individuals  holding  a  minority  of  the  shares 
becomes  easier. 

Most  of  the  money  used  in  the  construction  of  rail- 
roads in  this  country  was  obtained  by  borrowing  money. 
The  bondholders  furnished  most  of  the  capital  used  in  rail- 
road construction.  When  times  are  good  and  business 
active,  railroad  companies  have  no  difficulty  in  paying  the 
interest  on  their  debts ;  but  when  times  are  bad  and  busi- 
ness dull,  many  corporations  in  the  past  have  found  their 
income  insufficient  to  meet  their  current  obligations.  When 
a  corporation  is  unable  to  make  the  payments  it  has  agreed 
to  make  it  is  called  insolvent,  and  the  people  to  whom 
the  corporation  is  in  debt — that  is,  the  bondholders  or  those 
from  whom  equipment  has  been  purchased— may  request 
a  court  to  take  from  the  officers  of  the  railroad  the  man- 
agement of  the  company  until  the  road  again  becomes 
solvent. 

When  the  court  thus  takes  control  of  a  road  in  the  inter- 
ests of  the  creditors,  it  takes  the  place  of  the  corporation  for 
the  time  being.  If  the  court  finds  that  the  road  can  be  put 
upon  a  paying  basis,  the  court  will  keep  the  road  running 
until  the  financial  troubles  are  past.  If,  however,  the  court 
finds  the  railroad  to  be  hopelessly  insolvent  it  proceeds  to 
sell  out  the  property  and  to  pay  over  to  the  creditors  the 
sum  received  from  the  sale.  On  some  occasions  railroad 
corporations,  foreseeing  the  approach  of  financial  difficul- 
ties, have  besought  the  courts  to  assume  the  management 
of  their  properties  in  order  that  the  officials  of  the  cor- 
poration might  shield  themselves  from  the  consequences 
of  their  own  acts.  Such  practices,  however,  are  not 
justifiable,  and  in  time  will  probably  be  made  impossible 
by  laws  regulating  the  management  of  insolvent  corpora- 
tions. 


RAILROAD  CORPORATION  AND  CHARTER      107 

REFERENCES 

Meyer,  B.  H.  "Railway  Regulation  under  Foreign  and  Do- 
mestic Laws,"  in  Report  of  Industrial  Commission,  IX, 
897-1004  (1901).  [This  contains  a  good  discussion  of  rail- 
road charters.] 

.    Railway  Legislation  in  the  United  States  (1903). 

Those  interested  in  the  study  of  railroad  law  will  find  the  sub- 
ject fully  covered  in  the  standard  treatises  by  Elliott,  Red- 
field,  and  others. 


CHAPTER  VIII 

RAILROAD  CAPITAL 

Stocks  and  bonds,  108.  Classes  of  bonds,  109.  Classes  of  stocks, 
no.  Railroad  capitalization  in  the  United  States,  no.  Stock 
watering,  113.  Motives  for  stock  watering,  113.  The  pro- 
moter and  the  underwriter,  116.  Methods  of  stock  watering, 
117.  Effect  of  stock  watering,  120.  Bases  of  railway  capitaliza- 
tion, 121.  Public  regulation  of  railroad  capitalization,  124. 
State  laws,  125.  The  Hadley  Commission,  127.  Federal  reg- 
ulation,  128.     References,  130. 

The  shares  or  certificates  of  stock  issued  by  a  corporation 
represent  the  investment  made  by  the  stockholders  who 
are  the  owners  of  the  company.  The  property  of  the  rail- 
road company  is  usually  obligated,  however,  to  people  who 
loan  money  to  the  corporation.  To  persons  advancing  money 
in  the  form  of  loans  extending  for  a  period  of  one  year 
or  more  the  railroad  company  as  a  rule  gives  bonds  or  cer- 
tificates of  indebtedness,  usually  secured  by  a  mortgage, 
which  enable  the  bondholders  to  take  a  certain  part  or  all 
of  the  property  of  the  company  if  it  does  not  pay  the  inter- 
est and  principal  of  the  loan  according  to  the  terms  of  the 
contract  contained  in  the  bond.  The  bonds  represent  the 
funded  debt  of  the  railroad.  A  corporation  also  often  ob- 
tains temporary  advances  of  labor  and  material  on  credit, 
but  these  obligations  are  included  within  its  "current  liabili- 
ties" which  are  made  up  of  debts,  other  than  funded  debt, 
which  have  matured  and  are  payable  at  once  or  at  the  de- 
mand of  the  creditor. 

Strictly  speaking,  the  capital  of  a  corporation  comprises 
only  the  stock  that  has  been  issued ;  but  in  the  case  of  the 

108 


RAILROAD  CAPITAL  109 

railroads  of  the  United  States  it  is  customary  to  include 
bonds  as  well  as  stocks  in  the  capita!.  The  reason  for  this 
is  that  the  issue  of  bonds  has  been  the  means  by  which  a 
large  share,  indeed  the  greater  portion,  of  the  funds  was  se- 
cured for  the  construction  of  the  railroads.  The  bond- 
holders have  frequently  created  the  property  against  which 
their  mortgages  lie.  The  full  amount  of  the  investment  can 
be  ascertained  only  by  taking  account  of  both  the  stock  and 
the  bonds  or  funded  debt.  The  current  liabilities  of  the 
railroad  companies  are  not  now  counted  a  part  of  the  cap- 
italization, although  they  were  so  included  in  the  statistics 
compiled  by  the  United  States  Interstate  Commerce  Com- 
mission until  1896,  when  it  was  decided  that  only  regular 
investments  should  be  considered  as  capital. 

Various  classes  of  bonds  a^e  issued  by  railroad  companies 
to  secure  capital.  The  most  common  class  is  the  mortgage 
bond,  both  the  interest  and  principal  of  which  are  secured 
by  a  lien  on  some  specific  and  tangible  property.  The  mort- 
gage may  cover  rolling  stock,  terminals,  real  estate,  or  the 
entire  physical  property  of  the  borrowing  company,  that  is, 
the  creditor  may  hold  equipment  bonds,  terminal  bonds,  real 
estate  bonds,  or  general  or  "blanket"  bonds.  Moreover,  the 
payment  of  these  bonds  may  be  secured  by  a  first  mortgage 
or  by  a  second,  third  or  fourth  mortgage — the  holders  of 
all  but  the  first  mortgage  bonds  being  called  junior  lienors. 

Another  class  of  bond  frequently  issued  by  a  railroad 
company  is  the  collateral  trust  bond,  which  has  for  its  se- 
curity stocks,  bonds  or  other  commercial  paper,  deposited 
with  a  trustee,  who  is  authorized  to  sell  the  securities  pledged 
in  case  the  bondholder  fails  to  receive  his  interest  and  prin- 
cipal. Debentures  represent  a  claim  on  the  income  derived 
by  the  borrowing  railroad  company  from  specified  sources, 
and  they  usually  rest  on  no  other  security  than  the  general 
credit  of  the  company.  In  England,  railroad  bonds  are 
largely  of  the  debenture  class,  but  in  the  United   States 


110  RAILROAD  TRANSPORTATION 

creditors  usually  prefer  the  security  of  a  mortgage.  In- 
come bonds,  which  are  likewise  seldom  used  in  this  country, 
have  the  principal  secured  by  a  mortgage  on  the  property 
of  the  issuing  company,  but  the  interest  is  contingent  upon 
the  surplus  income  of  the  railroad  company  after  superior 
obligations  are  discharged. 

Whatever  the  class  of  bond  issued,  the  claims  of  the 
bondholder  precede  those  of  the  stockholder.  No  dividend 
can  be  declared  on  stock  until  the  current  interest  charges 
have  been  met  and  the  principal  of  matured  bonds  has  been 
paid.  Two  general  classes  of  stock  may  be  issued  by  a  cor- 
poration, common  and  preferred.  Preferred  stock  has  a 
claim  to  a  given  dividend,  which  must  be  paid  before  any 
income  available  for  the  payment  of  dividends  is  distributed 
among  the  holders  of  common  stock.  Some  preferred 
stocks  are  cumulative,  that  is,  if  the  stipulated  dividend 
ivhich  they  command  is  not  paid  in  full  at  the  proper  time, 
the  amount  remaining  unpaid  is  carried  forward  as  a  prior 
daim  upon  all  income  available  for  dividends.  Holders  of 
common  stock  are  the  final  claimants  of  the  surplus  income 
of  the  corporation,  and  they  receive  dividends  only  after  all 
interest  charges  and  dividends  on  preferred  stock  are  paid. 

On  December  31,  1918,  the  total  capitalization  of  the  rail- 
roads of  the  United  States  amounted  to  $20,784,832,841.  Of 
this  amount  $19,453,273,003  was  actually  outstanding,  the 
remainder  having  been  issued  only  nominally  and  held  by  or 
for  the  issuing  corporations.  Stocks  made  up  for  $9,055,- 
117,036  of  the  capitalization,  while  $11,729,715,805  con- 
sisted of  funded  debt.  The  railroad  companies  owned, in  their 
corporate  capacity,  $2,322,838,352  of  stocks  and  $2,007,- 
655,454  of  bonds,  leaving  as  the  net  capitalization  of  all  the 
railroads  $16,454,339,035. 

Between  1900  and  1918  there  was  an  increase  of 
82  per  cent  in  the  total  of  stocks  and  bonds  of  Ameri- 
can railroads.     The  growth  of  mileage  was  33  per  cent, 


RAILROAD  CAPITAL  111 

much  less  than  the  addition  made  to  capital.  Stocks  de- 
creased in  comparison  with  bonds.  In  1900  stock  com- 
prised 51  per  cent  of  the  total  capital  and  in  1918,  43.5 
per  cent.  Until  1895  the  amount  of  bonds  issued  exceeded 
the  stock,  but,  because  of  the  business  depression  at  that 
time,  many  roads  had  become  insolvent  and  found  it  neces- 
sary to  reduce  their  fixed  charges  by  substituting  stock  for 
bonds. 

It  seemed  probable  that  railroad  companies  would  there- 
after make  use  of  stocks  more  than  bonds  to.  secure  addi- 
tional funds,  because  a  strong  road  having  an  assured  traffic 
can  find  a  ready  market  for  its  stocks.  Since  1900,  how- 
ever, bonds  have  been  substituted  for  stocks  in  the  pur- 
chase of  one  road  by  another,  and  this  is  probably  a  per- 
manent tendency  resulting  from  the  process  of  consolida- 
tion and  extension.  A  marked  feature  of  the  financial  pol- 
icy of  many  large  American  railway  systems  is  the  issue 
of  a  huge  quantity  of  "blanket"  bonds,  for  the  purpose  of 
retiring  previous  issues  and  in  order  to  secure  money  for 
improvements. 

The  capitalization  per  mile  of  railroad  in  the  United 
States  in  1918  averaged  $66,893.  In  obtaining  this  average 
the  railway  stocks  and  bonds  held  by  the  railroads  them- 
selves are  not  considered,  only  the  amount  of  securities  actu- 
ally outstanding  "in  the  possession  of  the  public"  being  taken 
as  the  basis  of  calculation.  There  are  great  differences  in 
the  various  roads  as  regards  the  amount  of  capital  per  mile 
of  line,  some  roads  having  only  $10,000  of  capital  per 
mile,  while  others  have  from  $300,000  to  $500,000  per 
mile. 

A  single-track  road  across  a  level  section  of  a  new  portion 
of  the  country,  where  the  right  of  way  and  terminal  facili- 
ties can  be  secured  at  a  nominal  expense,  may  be  con- 
structed for  a  small  fraction  of  what  it  costs  to  build  lines 
over  mountains  or  between  large  cities  in  populous  regions, 


112  RAILROAD  TRANSPORTATION 

like  the  eastern  United  States  or  western  Europe,  where 
real  estate  values  are  high. 

Cost,  however,  is  only  one  of  the  causes  accounting  for 
differences  in  capitalization.  Variations  in  capitalization 
among  different  companies  arise  from  the  fact  that  some 
systems,  like  the  Pennsylvania,  Illinois  Central,  and  others 
similarly  managed,  have  issued  stocks  and  bonds  in  a  con- 
servative rather  than  a  speculative  spirit ;  whereas,  some 
companies,  notably  those  owning  most  of  the  Pacific  roads, 
formerly  pursued  a  policy  of  capitalizing  their  properties 
as  largely  as  possible. 

The  average  capitalization  of  the  railroads  of  the  United 
Kingdom  is  about  $278,000  per  mile  or  more  than  four  times 
the  average  for  the  United  States.  In  England  and  Wales 
the  capitalization  per  mile  of  line  in  191 1  was  $328,415. 
The  great  difference  between  the  capitalization  of  British 
railroads  and  the  railroads  of  the  United  States  is  due  to 
several  causes.  The  British  companies  had  larger  expenses 
for  right  of  way  and  terminals,  and  they  built  their  roads 
more  solidly  than  was  customary  in  the  United  States.  The 
British  companies,  unlike  most  of  those  in  America,  charge 
practically  all  improvements  to  capital  and  not  to  revenue. 
Some  American  companies  expend  more  of  their  earnings 
for  betterments  and  new  construction  than  they  distribute  in 
dividends. 

The  capital  of  American  railroads  is  increasing,  partly 
from  the  fact  that  new  lines  are  being  constructed,  but  more 
because  existing  roads  are  becoming  of  greater  value  with 
the  progress  of  the  country  and  the  growing  volume  of  rail 
traffic.  To  some  extent  this  enhancing  value  of  railroad 
property  is  being  capitalized  by  the  issue  of  new  securities. 
During  the  year  1900,  for  instance,  when  there  was  a  very 
large  increase  in  capital,  amounting  to  $457,000,000,  there 
was  probably  not  over  $120,000,000  used  in  building  the 
4,051  miles  of  new  roads;  the  remaining  $337,000,000  rep- 


RAILROAD  CAPITAL  113 

resented  a  higher  capitalization  of  roads  previously  con- 
structed. The  recent  increase  in  capital,  however,  does  not 
equal  the  total  growth  in  the  value  of  railroad  property. 
Many  stocks  formerly  issued  have  become  more  valuable 
during  the  past  few  years. 

In  the  case  of  many  American  railroads  built  after  1850, 
particularly  in  the  Western  and  Southern  States,  the  stock 
represented  very  little  investment.  Most  of  the  money  used 
in  construction  was  secured  by  the  sale  of  bonds,  the  stock 
being  sold  cheaply  or  given  as  a  bonus  to  the  purchasers  of 
bonds.  The  stock  thus  cheaply  secured  gave  investors  the 
possibility  of  large  gains  through  an  increase  in  the  value 
of  the  stocks,  should  the  railroad  develop  a  large  traffic. 
When  stock  is  issued  which  does  not  represent  a  corre- 
sponding increase  in  the  assets  of  the  issuing  corporation 
it  is  called  "watered  stock,"  the  amount  of  water  at  the 
time  of  the  issue  being  the  difference  between  the  par 
value  (or  the  market  value,  if  the  stock  commands  a 
price  above  par)  and  the  assets  actually  received  for  the 
stock.  The  stock  of  many  American  railroads  has  been 
largely  watered.  One  evidence  of  this  is  the  fact  that 
in  the  highly  prosperous  year  of  1900  less  than  one-half 
of  the  railroad  stock  of  this  country  received  any  divi- 
dend and  in  1918  only  58.09  per  cent  received  dividends. 
In  1897  only  29.9  per  cent  of  the  stock  received  dividends. 
In  only  three  years  since  1887  have  two-thirds  or  more 
of  the  railroad  stocks  of  the  United  States  yielded  divi- 
dends to   their  owners. 

Some  stocks  on  which  no  dividends  are  received  may 
have  a  selling  value  for  speculative  purposes,  and  others 
from  which  no  income  is  now  obtained  may  represent  a  real, 
although  unfortunate,  investment;  but  in  general,  non-divi- 
dend stocks  stand  for  water  instead  of  real  investment. 
Moreover,  many  stocks  receive  small  dividends  and  are 
quoted  on  the  market  much  below  par.     They  also  consist 


114  RAILROAD  TRANSPORTATION 

largely  of  water.  It  is  thus  evident  that  American  rail- 
road stocks  as  a  whole  have  a  par  value  greater  than  the  real 
capital  received  by  the  companies  issuing  the  stocks.  This 
is  not  true  of  some  railroad  companies  which  have  closely 
restricted  the  issue  of  stocks  and  have  sold  them  at, 
near,  or  above  par.  Nor  is  it  equally  true  of  all  sections 
of  the  United  States,  there  being  less  fictitious  value  in  the 
stock  of  the  eastern  railroads  than  in  those  of  other  sections 
of  the  country. 

These  statements  are  corroborated  by  an  investigation 
that  was  made  by  the  Interstate  Commerce  Commission. 
In  February,  1901,  the  United  States  Senate  called  upon  the 
Interstate  Commerce  Commission  for  a  statement  compar- 
ing the  par  and  market  values  of  all  classes  of  railroad  se- 
curities during  the  year  ending  June  30,  1900.  The  report, 
made  by  the  commission  February  24,  1903,  indicated  that 
the  $10,911,968,970  of  securities  (par  value),  whose  market 
value  could  be  ascertained,  had  a  total  average  market  value 
in  1900  of  $8,351,103,523;  but  the  commission  was  careful 
to  point  out  that  the  figures  were  only  approximately  cor- 
rect. There  were  securities  with  a  par  value  of  $812,066,859 
whose  selling  value  could  not  be  ascertained.  Moreover, 
the  commission  called  attention  to  the  fact  that  the  prices 
paid  for  the  securities  bought  and  sold  could  not  safely 
be  accepted  as  the  measure  of  the  value  of  the  securities 
not  on  the  market;  and  also  that  the  values  of  the  securi- 
ties listed  on  the  stock  markets  were  not  necessarily  "a  just 
measure  for  the  valuation  of  the  property."  However,  in 
spite  of  the  recognized  limitations  of  the  facts  presented  in 
the  commission's  report,  the  data  there  presented  indicate 
that  there  was  in  1900  a  considerable  difference  between  the 
market  and  par  value  of  railroad  securities.  Market  values, 
of  course,  depend  mainly  upon  the  income  obtained  from 
securities;  but  if  stocks  and  bonds  had  uniformly  been  sold 
at  or  near  par  at  the  time  of  their  issue,  the  comparison 


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116  RAILROAD  TRANSPORTATION 

of  par  and  market  values  in  1900  would  most  likely  have 
shown  the  market  values  to  have  been  greater  than  the 
par  values.  ♦ 

In  addition  to  the  motive  for  stock  watering  cited  above 
— the  distribution  of  stock  among  bond  purchasers  gratis 
or  at  a  low  price — there  are  three  other  incentives  to  the 
issue  of  large  amounts  of  stock.  In  financing  corporations 
it  has  been  found  that  greater  profits  can  be  secured  from 
the  sale  of  large  amounts  of  stocks  and  bonds  at  a  low 
figure  than  from  the  sale  of  small  issues  at  a  high  price. 
Investors  prefer  securities  affording  opportunities  for  spec- 
ulative gains.  Ten  million  dollars  of  3  per  cent  bonds  will 
sell  for  more  than  $6,000,000  of  5  per  cent  bonds,  although 
the  income  at  the  beginning  would  be  the  same  from  each 
investment.  Another  motive  for  stock  watering  is  the  de- 
sire to  capitalize  the  future  growth  in  the  earnings  and  value 
of  the  property ;  the  large  volume  of  stock  is  not  issued  by 
the  company  for  immediate  sale,  but  to  be  held  by  the  in- 
dividuals composing  the  company  in  order  that  they  may 
have  an  ample  basis  for  the  distribution  of  future  profits 
which  they  anticipate  will  be  large.  This  plan  of  large 
capitalization  also  enables  the  company  to  conceal  from 
the  general  public  the  real  amount  of  its  profits.  Large 
profits  are  secured  from  low  rates  of  dividends  and  from 
securities  having  a  low  valuation,  and  this  is  advantageous 
from  the  investor's  standpoint  in  a  business  such  as  rail- 
road transportation,  where  the  charges  for  services  are  sub- 
ject to  public  regulation. 

The  men  who  "promote"  and  underwrite  new  corpora- 
tions or  the  consolidation  of  competing  companies  have  de- 
rived special  gains  from  the  device  of  stock  watering.  The 
business  of  the  promoter  is  to  organize  a  corporation  or  a 
combination  of  corporations  and  to  induce  those  affected 
to  agree  to  the  conditions  of  organization.  If  several  com- 
panies are  to  be  united,  the  promoter  first  secures  from  each 


RAILROAD  CAPITAL  117 

company  an  option  for  purchase  at  a  fixed  sum ;  and  then 
he  fixes  the  capital  of  the  new  consolidated  corporation  at  a 
sum  much  in  excess — usually  about  double — the  total  cap- 
ital of  the  constituent  concerns.  The  several  companies 
are  paid  in  cash  or  with  preferred  stock,  and  more  or  less 
common  stock  is  usually  thrown  in  as  a  bonus.  A  large 
share  of  the  common  stock  is  retained  by  the  promoter  to 
remunerate  him  for  his  services,  and  the  profits  he  realizes 
from  his  undertaking  come  chiefly  from  the  sale  of  this 
watered  stock. 

To  insure  the  sale  of  securities  a  corporation  usually 
negotiates  with  a  banking  house  or  a  syndicate  of  bankers  to 
act  as  underwriters.  The  bankers  agree  to  sell  a  certain 
amount  of  stocks  or  bonds  at  a  minimum  price,  or  failing  to 
do  so,  to  take  the  securities  not  disposed  of.  To  the  pro- 
moter of  a  new  company  the  services  of  the  underwriter 
are  of  great  importance ;  and  the  directors  of  established 
corporations  often  prefer  to  insure  the  sale  of  a  block  of 
new  securities  at  a  certain  minimum  rate,  rather  than  risk 
the  hazards  of  the  open  market.  The  underwriter  receives 
large  pay,  in  the  form  of  cash  or  securities,  and  further- 
more he  is  often  able  to  realize  a  profit  from  the  sale  of 
the  stocks  or  bonds  which  he  guarantees.  In  many  instances 
the  promoter  of  a  new  company  and  the  underwriter  are 
the  same  individual  or  business  organization. 

The  methods  by  which  stock  watering  may  be  accom- 
plished are  numerous.  A  generation  ago,  when  the  stand- 
ards of  railroad  financiering  were  lower  than  they  now  are, 
the  securities  of  a  railroad  were  sometimes  increased  at  the 
will  of  speculators  for  the  purpose  of  manipulating  the  mar- 
ket. The  history  of  the  Erie  Railroad  and  other  transpor- 
tation corporations,  when  in  the  hands  of  speculators  and 
unscrupulous  operators,  affords  conspicuous  examples  of 
fraudulent  practices.1 

1  See  Charles  Francis  Adams,  Chapters  of  Erie. 


118  RAILROAD  TRANSPORTATION 

Another  fraudulent  method  of  dealing  with  stocks  and 
bonds,  much  in  vogue  between  i860  and  1880,  consisted  of 
awarding  large  amounts  of  securities  to  construction  com- 
panies which  were  composed  of  officials  of  the  railroad 
corporation.  One  of  the  most  noted  construction  companies 
of  this  kind,  though  only  one  of  many,  was  the  Credit  Mo- 
bilier,  to  which  the  contracts  for  building  the  Union  Pacific 
Railroad  were  let.1  This  method  of  defrauding  the  stock- 
holders not  in  the  ring  of  interested  officials  has  a  parallel  in 
the  exorbitant  payment  of  securities  to  the  syndicate  of  bank- 
ers that  finances  the  enterprise  of  constructing  a  new  road 
or  assumes  the  task  of  reorganizing  an  insolvent  company. 
According  to  the  report  of  the  Industrial  Commission,  "the 
original  Southern  Pacific  cost  actually  only  $6,500,000;  al- 
though it  is  a  matter  of  record  that  $15,000,000  was  paid 
to  a  construction  company,  and  the  bankers'  syndicate,  which 
financed  the  road,  received  $40,000,000  in  securities,  or 
an  average  of  $6  in  bonds  and  stock  for  each  dollar  of  actual 
cost." 

These  methods  of  stock  watering  are  not  charac- 
teristic of  railroad  construction  and  financiering  today,  but 
they  have  not  been  entirely  eliminated.  Stock  watering  is 
accomplished  at  the  present  time  in  a  variety  of  ways.  One 
method  is  to  distribute  a  new  issue  of  stocks  among  the 
stockholders  either  as  a  bonus  or  to  sell  it  to  them  below 
par  or  for  less  than  the  price  which  could  be  obtained  in  the 
open  market.  A  railroad  is  sometimes  in  the  fortunate  po- 
sition of  having  a  revenue  sufficient  to  pay  large  dividends 
and  to  add  largely  to  the  undistributed  surplus.  By  increas- 
ing the  stock  the  rate  of  profits  or  dividends  can  be  kept  at 
a  lower  figure,  and  any  unneeded  surplus  reserve  can  be 
turned  over  to  the  stockholders. 

Railroad  companies  having  an  undesirably  small  revenue 

1  See  histories  of  the  Union  Pacific  by  Davis  and  by  White ;  also 
The  Credit  Mobilier  by  Crawford. 


RAILROAD  CAPITAL  119 

sometimes  add  to  their  funded  debts,  and  thus  to  their  cap- 
italization, by  converting  current  liabilities,  such  as  bills 
payable,  wages  and  salaries  due,  into  interest-bearing  scrip. 
This  kind  of  financiering  is  a  temptation  to  which  compa- 
nies are  apt  to  yield  during  protracted  periods  of  business 
depression,  but  it  violates  the  principle  that  current  expenses 
should  be  paid  from  current  earnings. 

The  retirement  of  bonds  by  the  issue  of  stock  much  in 
excess  of  the  amount  of  the  bonds  canceled  is  resorted  to 
by  some  companies.  This  is  done  for  two  reasons.  By  re- 
ducing the  funded  debt,  the  fixed  charges  are  lessened,  and 
the  difficulties  of  weathering  financial  depressions  are  made 
lighter.  Similarly  the  large  volume  of  stock  is  useful  in 
times  of  prosperity,  because  it  affords  an  ample  basis  for 
the  distribution  of  large  profits  in  dividends  at  a  low  rate 
per  cent  on  the  capitalization.  In  the  reorganization  of  in- 
solvent companies,  the  fixed  charges  are  frequently  reduced 
by  the  substitution  of  stocks  for  bonds. 

The  consolidation  of  railroad  companies  is  frequently 
accompanied  by  a  large  increase  in  capitalization.  This  has 
been  notably  the  case  with  the  consolidations  that  have  taken 
place  since  1898,  and  has  been  even  more  characteristic  of 
the  mergers  of  street  railways  than  of  trunk-line  railroads. 
In  making  the  purchase  of  the  Chicago,  Burlington  and 
Quincy  by  the  Great  Northern  and  Northern  Pacific  inter- 
ests, and  in  the  transfer  of  the  Lake  Shore  to  the  New 
York  Central,  the  stocks  of  the  selling  companies  were  ex- 
changed for  bonds  of  the  purchasers,  $2  of  bonds  being 
given  for  each  dollar  of  stock.  The  Northern  Securities 
Company,  organized  in  1901  to  hold  the  securities  of  the 
Great  Northern,  Northern  Pacific,  and  Burlington  systems, 
exchanged  $180  of  its  stock  for  $100  of  Great  Northern 
stock  and  $115  of  its  stock  for  $100  of  Northern  Pacific 
stock.  Competing  railroads  are  consolidated  for  the  pur- 
pose of  stopping  the  expenses  due  to  competition,  and  to 


120  RAILROAD  TRANSPORTATION 

introduce  a  more  economical  administration  of  the  proper- 
ties. These  anticipated  savings  are  usually  capitalized  in 
advance  by  the  issue  of  additional  securities. 

There  are  differences  of  opinion  as  to  whether  the  water- 
ing of  stock  should  be  practiced  by  railroad  companies  or 
permitted  by  the  Government.  There  is  little  doubt  that  the 
practice  gives  greater  scope  for  speculation,  some  forms  of 
which  are  decidedly  objectionable.  The  company  with  a 
large  capitalization  and  a  consequently  low  rate  of  divi- 
dends has  a  plausible  reason  for  opposing  the  payment  of 
higher  wages  to  its  employees  and  for  objecting  to  a  reduc- 
tion of  the  rates  and  fares  charged  the  public.  The  actual 
relation  of  capitalization  to  railway  charges  is  difficult  to 
determine,  and  the  discussions  of  the  subject  show  a  dif- 
ference of  views  among  students  of  transportation,  but  there 
is  no  doubt  that  a  railroad  company  whose  rate  of  dividends 
is  small  is  less  liable  to  have  its  charges  reduced  by  public 
authority  than  it  would  be  if  its  regular  dividends  showed 
a  high  rate  of  profits.  The  excessive  watering  of  stock  is 
certainly  opposed  to  conservative  railroad  financiering.  The 
best  managed  companies  have  carefully  limited  the  amount 
of  their  securities,  both  bonds  and  stocks.  The  promoter 
and  speculator  find  their  opportunity  in  the  practice  of  wa- 
tering stock,  but  the  general  investor  and  the  responsible 
managers  of  railroad  properties  are  safer  under  a  policy 
of  restricted  capitalization. 

A  partial  excuse  for  the  excesses  of  the  past  may  be 
found  in  the  fact  that  many  of  the  early  railroads,  especially 
in  the  West,  were  extremely  hazardous  enterprises,  and  it 
was  only  by  appealing  to  the  speculative  interests  of  indi- 
viduals that  capital  could  be  secured  at  all  for  their  con- 
struction. Furthermore  it  must  be  said  that  in  many  cases 
the  "water"  injected  into  railway  securities  a  few  decades 
ago  has  been  absorbed  by  the  application  of  large  portions 
of  the  railway  revenues  to  the  improvement  of  the  proper- 


RAILROAD  CAPITAL  121 

ties,  instead  of  to  the  payment  of  dividends,  until  the  value 
of  the  railroad  now  approaches  more  nearly  the  par  value  of 
the  stocks  and  bonds  which  they  represent.  But  whatever 
methods  of  capitalization  past  conditions  may  have  justified, 
under  present  conditions  reckless  speculation  with  railway 
property  and  gross  overcapitalization  should  no  longer  be 
tolerated. 

The  manner  and  extent  to  which  railroad  capital  should 
be  limited  by  public  regulation  may  be  understood  better 
after  considering  the  basis  which  should  be  accepted  in  de- 
termining whether  a  railroad  is  or  is  not  overcapitalized. 
Different  views  obtain  as  to  the  proper  basis  for  capitalizing 
a  railroad.  Some  persons  claim  that  the  original  cost  of  the 
property  and  the  money  actually  invested  at  the  beginning 
and  subsequently  should  determine  the  amount  of  capital 
issued.  Others  hold  that  the  earnings  of  a  railroad  afford 
the  true  measure  of  the  volume  of  capital  that  may  safely 
be  adopted,  while  some  persons  consider  the  true  basis  of 
capitalization  at  any  given  time  to  be  the  cost  of  reproducing 
the  railroad — the  sum  it  would  require  to  obtain  the  right 
of  way,  construct  the  line,  and  acquire  the  terminals. 

The  most  natural  supposition  is  that  railroad  capital 
should  represent  the  cost  of  the  property,  the  money  ac- 
tually invested,  that  stocks  and  bonds  should  be  issued  only 
for  money  paid  in,  and  that  their  par  value  should  ap- 
proach as  closely  as  practicable  their  actual  value  at  the 
time  of  issue.  This  theory  is  not  altogether  satisfactory, 
however,  because  some  roads  have  cost  more  than  they 
ought  on  account  of  inefficient  or  fraudulent  management, 
or  because  they  were  constructed  at  a  time  when  labor  was 
scarce,  materials  expensive,  and  interest  rates  high.  Under 
such  conditions  cost  gives  a  capitalization  higher  than  would 
be  just  to  the  public  at  the  present  time.  Likewise,  some 
roads  have  been  very  economically  built,  and  have  been 
managed  with  such  ability  and  honesty  as  to  have  had  their 


122  RAILROAD  TRANSPORTATION 

value  greatly  increased.  Business  ability  should  have  its  re- 
wards, and  a  rule  regarding  capitalization  which  would  not 
give  men  the  results  of  their  efforts  would  be  neither  just 
to  them  nor  in  harmony  with  the  best  interests  of  the  public. 

The  basis  for  capitalization  preferred  by  the  men  inter- 
ested in  railroad  management  is  the  earning  capacity  of  the 
property.  The  selling  value  of  the  railroad  is  determined 
by  its  earnings,  and  that  its  selling  value,  present  and  prob- 
able, may  justly  be  fully  capitalized  is  the  contention  of 
those  who  accept  this  theory.  This  plan  of  capitalization 
enables  a  railroad  company  to  obtain  money  from  investors 
more  readily,  since  many  persons  prefer  to  buy  securities 
at  a  discount  because  of  the  chance  of  securing  profits  from 
the  advance  in  the  price  of  the  securities  with  the  growth  of 
the  earnings  of  the  railroad.  There  are  certain  objections 
to  this  theory  of  capitalization,  one  being  that  the  excessive 
capital  conceals  real  profits,  and  makes  it  difficult  for  the 
men  who  serve  the  company  or  the  public  served  by  the 
corporation  to  determine  whether  the  men  who  own  the 
property  are  receiving  more  or  less  than  a  just  return  on 
their  investment,  whether  the  company,  the  employees,  and 
the  public  are  sharing  equitably  in  the  benefits.  To  permit  a 
railroad  company  to  secure  the  greatest  possible  earnings 
from  the  public,  and  to  cover  up  the  relation  of  profits  to 
actual  investment  by  issuing  stocks  or  bonds  without  limita- 
tion, is  not  in  accord  with  present  views  as  to  the  public 
obligations  of  carriers. 

Does  cost  of  reproduction  or  duplication  afford  a  satis- 
factory and  fair  basis  for  capitalization?  This  theory  has 
been  accepted  by  some  of  the  State  railroad  commissions, 
and  has  been  followed  by  several  courts.  The  Interstate 
Commerce  Commission,  however,  and  the  United  States 
Supreme  Court  have  not  adopted  this  rule.  In  order  to 
determine  what  rates  a  railroad  company  may  reasonably 
charge,  the  courts  and  commissions  are  obliged  to  decide 


RAILROAD  CAPITAL  123 

how  much  capital  is  justly  entitled  to  receive  profits  from 
the  company's  earnings — i.  e.,  they  are  compelled  to  de- 
termine the  actual  and  just  value  of  the  property;  for  it 
may  be  assumed  that  its  owners  may  properly  issue  capital 
to  the  amount  of  a  just  valuation  of  the  railroad.  The 
amount  of  money  invested  in  the  property  does  not  reveal 
the  true  present  value  for  reasons  already  stated.  The 
earning  capacity  of  the  railroad  can  not  equitably  or  logically 
be  made  the  sole  criterion  of  value,  because  the  rates,  and 
hence  the  earnings,  should  depend  to  some  extent  at  least 
upon  the  amount  of  capital  justly  entitled  to  profits. 

The  solution  of  this  difficult  question  seems  to  be  found 
jy  taking  into  consideration  both  the  cost  of  reproduc- 
tion and  the  earning  capacity  in  determining  the  basis 
of  capitalization,  and  this  method  has  been  followed  in 
a  general  way  by  numerous  courts  and  commissions.  Defi- 
nite rules  for  applying  this  method  as  a  basis  for  taxation 
were  worked  out  by  a  State  Tax  Commission,  in  Michigan, 
in  1900.  In  determining  the  value  of  the  physical  proper- 
ties of  the  railroad — its  roadbed,  rolling  stock,  terminals, 
etc. — the  cost  of  duplication  was  made  the  basis  of  valua- 
tion. The  railroad  company's  franchise,  the  special  con- 
cessions granted  to  it  by  public  authority,  and  the  special 
commercial  opportunities  upon  which  its  business  depended 
— that  is  to  say,  all  the  non-physical  or  immaterial  ele- 
ments of  its  property — were  valued  in  accordance  with 
their  earning  capacity.  To  ascertain  the  value  to  be  at- 
tributed to  these  non-physical  properties,  a  method  suggested 
by  Professor  Henry  C.  Adams  was  followed.  According 
to  the  method  devised  by  Professor  Adams,  the  value  of 
these  immaterial  properties 

was  determined  (1)  by  deducting  aggregate  expenses  of  opera- 
tion from  gross  earnings  and  adding  the  income  from  corpo- 
rate investments;  (2)  by  deducting  from  the  total  income  thut 


124  RAILROAD  TRANSPORTATION 

obtained  an  amount  properly  chargeable  to  capital — that  is, 
a  certain  per  cent  on  the  appraised  value  of  the  physical  prop- 
erties— rents  paid  for  the  lease  of  property  operated,  amount 
paid  for  taxes  and  the  sum  spent  on  permanent  improvements 
charged  directly  to  income;  (3)  by  capitalizing  the  remainder 
at  a  certain  rate  of  interest.1 

A  method  of  valuation  similar  to  this,  in  which  both 
the  value  of  the  physical  equipment  of  a  railroad  and  the  ad- 
vantages resulting  from  efficient  operation  and  economical 
management  would  receive  consideration,  would  offer  a 
basis  for  capitalization  equitable  to  all  parties  of  interest — • 
the  public,  the  investor,  and  the  railroad  company. 

The  excessive  capitalization  of  their  properties  by  many 
railroad  companies  for  the  purpose  of  securing  the  great- 
est possible  amount  of  money  from  the  investing  public,  and 
the  speculative — sometimes  fraudulent — manipulation  of 
railroad  securities,  have  probably  made  the  cost  of  securing 
transportation  services  greater  than  it  need  have  been,  and 
have  made  railroad  bonds  and  stocks  a  much  less  reliable 
form  of  investment  than  they  might  have  been.  For  many 
years  there  was  an  urgent  demand  that  the  capitalization 
of  railroad  corporations  be  subjected  to  public  control. 
In  many  States  laws  were  enacted  providing  for  the  regu- 
lation of  the  issuance  of  railroad  securities. 

Massachusetts  was  a  pioneer  in  the  enactment  of  legis- 
lation for  the  regulation  of  the  issuance  of  stocks  and  bonds 
by  railroad  companies  and  other  public  utility  corporations. 
The  laws  passed  by  this  State  forbade  the  distribution  of 
stock  as  a  bonus  to  the  purchasers  of  bonds,  and  other 
common  forms  of  stock  watering  were  likewise  prohibited. 
The  Public  Service  Commission  law  of  Massachusetts  pro- 
vided that  before  a  railroad  corporation  might  issue  securi- 
ties it  should  apply  to  the  Commission  for  an  order  approv- 

1  Report  of  Industrial  Commission,  XIX,  412. 


R AILROAD  CAPITAL  125 

ing  the  proposed  issue.  It  was  required  that  the  application 
state  the  purpose  for  which  the  securities  were  intended; 
the  Commission  was  authorized  to  determine  the  amount 
reasonably  necessary  for  the  purpose  indicated  in  the  appli- 
cation, and  was  also  authorized  to  order  the  proceeds  of 
the  sale  of  the  securities  to  be  applied  to  particular  uses. 
Shares  of  stock  could  not  be  sold  or  issued  for  a  less  amount 
than  par  value,  actually  paid  in  cash.  New  shares  of  stock 
might  be  offered  proportionately  to  stockholders  at  a  price, 
not  less  than  par,  to  be  fixed  by  the  stockholders  themselves, 
subject  to  the  approval  of  the  Commission.  If  the  Com- 
mission thought  that  the  price  named  by  the  stockholders 
for  any  issue  of  stock  was  "so  low  as  to  be  inconsistent 
with  public  interest"  it  could  refuse  its  approval  of  the 
issue.  The  law  thus  served  to  prevent  the  emission  of  stock 
at  a  price  so  much  below  market  value  as  to  bring  about 
stock  watering,  but  at  the  same  time  permitted  the  corpora- 
tions and  their  shareholders  to  participate  to  a  certain  ex- 
tent in  any  premium  which  efficient  and  economical  man- 
agement might  cause  the  stock  to  command.  Railroad  cor- 
porations were  forbidden  to  issue  bonds,  notes,  and  other 
evidences  of  indebtedness  in  excess  of  twice  the  amount  of 
capital  stock  actually  paid  in. 

Many  other  States  followed  the  example  of  Massachu- 
setts in  regulating  the  capitalization  of  railroads  and  other 
public  utilities.  While  these  State  laws  unquestionably  did 
much  to  check  excessive  capitalization  of  railroads,  it  was 
clearly  perceived  that  State  legislation  could  not  bring  cap- 
italization under  complete  control.  Many  States  passed  no 
regulatory  laws  whatever,  and  the  practices  of  those  States 
which  did  take  action  were  by  no  means  uniform.  The  lines 
of  nearly  all  the  larger  railroad  companies  are  located  in 
several  States,  and  it  was  easy  for  the  corporate  officials  to 
carry  out  plans  of  unwise  financing  in  the  States  where  the 
laws  were  least  stringent  and  effective.     For  example,  the 


126  RAILROAD  TRANSPORTATION 

operations  which  led  to  the  disastrous  financial  collapse  of 
the  New  Haven  railroad  were  carried  out  regardless  of  the 
excellent  laws  of  Massachusetts,  in  which  much  of  the  New 
Haven  property  was  located.  Moreover,  even  when  a  suffi- 
cient number  of  States  had  enacted  legislation  to  subject  a 
railroad  system  to  complete  regulation  many  difficulties  of 
administration  arose.  The  State  regulatory  bodies  did 
little  to  cooperate  with  one  another,  and  it  was  frequently 
necessary  for  the  corporate  officials  of  railroads  to  secure 
the  consent  and  approval  of  a  half-dozen  or  more  State 
Commissions  before  they  could  issue  needed  stocks  and 
bonds.  It  became  increasingly  apparent  that  the  regulation 
of  railroad  capitalization  should  be  centralized  under  a 
single  authority.  The  public  at  large  desired  such  central- 
ization because  of  the  lack  of  effective  legislation  by  all 
the  States.  The  managers  of  the  railroad  corporations 
desired  it  because  of  the  difficulties  they  met  with  in  con- 
forming to  the  orders  of  so  many  different  State  authori- 
ties. The  obvious  solution  of  the  problem  was  the  regula- 
tion by  the  Federal  Government  of  the  capitalization  of  all 
railroads  engaged  in  interstate  commerce. 

At  the  time  of  the  enactment  of  the  Hepburn  Amend- 
ment to  the  Interstate  Commerce  Law  in  June,  1906,  it 
was  suggested  that  the  Interstate  Commerce  Commission 
should  be  given  authority  to  control  railroad  capitalization, 
but  some  question  as  to  the  practicability  of  the  execution 
of  a  law  to  this  effect  prevented  its  adoption.  In  1910,  at 
the  time  of  the  passage  of  the  Mann-Elkins  Act,  the  ques- 
tion of  the  regulation  of  the  issue  of  stocks  and  bonds  by 
the  Interstate  Commerce  Commission  was  once  more  re- 
vived. Again  no  regulative  measure  was  passed,  but  a 
clause  of  the  Mann-Elkins  law  authorized  the  President 
of  the  United  States  to  appoint  a  Railroad  Securities  Com- 
mission to  investigate  the  entire  subject  of  railroad  capital- 
ization and  its  regulation.     This  commission,  at  the  head 


RAILROAD  CAPITAL  127 

of  which  was  Professor  A.  T.  Hadley,  President  of  Yale 
University,  rendered  its  report  in  191 1. 

The  Hadley  Commission,  as  it  was  popularly  known, 
argued  that  there  was  little  relation  between  capitalization, 
and  rates,  and  that  regulation  limiting  the  price  of  se^ 
curities  and  the  amount  which  might  be  issued  could  be  of 
but  little  benefit.  However,  as  a  measure  of  protection 
for  the  public  it  recommended  that  the  Federal  Govern- 
ment should  make  a  physical  valuation  of  all  the  railway 
property  of  the  country  and  should  require  the  fullest 
publicity  of  all  the  financial  transactions  of  the  railroad 
companies.  The  first  of  these  recommendations  was  en- 
acted into  law  in  1913,  and  under  the  direction  of  the 
Interstate  Commerce  Commission  a  valuation  of  the  physical 
properties  of  the  railroads  of  the  United  States  is  now  being 
made.  The  Hadley  Commission  advised  that  the  Govern- 
ment refrain  from  other  means  of  regulation  of  security 
issues,  partly  because  of  their  needlessness,  but  chiefly  be- 
cause of  the  certainty  of  conflict  between  Federal  and 
State  authority.  An  interesting,  and  according  to  most 
students  of  finance,  an  unwise  recommendation  of  the  com- 
mission was  that  a  stated  par  value  be  omitted  from  shares 
of  capital  stock. 

Notwithstanding  the  adverse  report  of  the  Hadley  Com- 
mission on  the  question  of  regulation  by  the  Federal  Gov- 
ernment of  the  issue  of  railroad  stocks  and  bonds  the  agi- 
tation for  Federal  control  continued.  The  persistence  of 
reckless  methods  of  railroad  finance  and  of  improper  manip- 
ulation of  securities  by  unscrupulous  directors  constituted 
an  argument  for  Federal  action  too  strong  to  be  withstood. 
In  June,  1914,  a  bill  giving  to  the  Interstate  Commerce 
Commission  powers  with  respect  to  the  issue  of  securities 
by  railroads  engaged  in  interstate  commerce  similar  to  the 
powers  possessed  by  the  stronger  State  commissions  was 
passed  by  the  House  of  Representatives,  but  it  did  not  reach 


128  RAILROAD  TRANSPORTATION 

a  final  vote  in  the  Senate.  Action  on  the  subject  was  there- 
after delayed  until  the  passage  of  the  Transportation  Act 
of  1920.  This  law  brought  the  regulation  of  railroad  capi- 
talization under  the  control  of  the  Interstate  Commerce 
Commission. 

Under  the  provisions  of  Section  20a  of  the  Interstate 
Commerce  Law,  as  that  law  now  stands  since  amended  by 
the  Transportation  Act  of  1920,  a  railroad  corporation 
subject  to  the  terms  of  the  act  may  not  issue  any  share  of 
capital  stock  or  any  bond  or  other  evidence  of  indebtedness 
except  with  the  consent  of  the  Interstate  Commerce  Com- 
mission. A  carrier  contemplating  an  issue  of  securities 
must  first  make  application  to  the  Commission  in  such  form 
as  the  Commission  may  prescribe.  Upon  receipt  of  the 
application  the  Commission  is  required  to  give  notice  there- 
of to  the  governor  of  each  State  in  which  the  applicant 
carrier  operates.  The  regulatory  authorities  of  the  State 
have  the  right  to  make  before  the  Commission  such  repre- 
sentations with  respect  to  the  application  as  they  think 
proper.  The  Commission  may  hold  hearings,  if  it  chooses 
to  do  so,  to  enable  it  to  determine  what  its  decision  on  the 
application  should  be.  It  may  grant  or  deny  the  applica- 
tion or  it  may  grant  it  with  modifications  and  upon  such 
terms  and  conditions  as  it  deems  appropriate.  The  juris- 
diction of  the  Commission  is  "exclusive  and  plenary,  and 
a  carrier  may  issue  securities  and  assume  obligations  or 
liabilities"  without  securing  the  approval  of  other  authori- 
ties. The  only  securities  which  the  carrier  may  issue  with- 
out the  Commission's  express  consent  are  short-term  notes 
of  a  maturity  of  two  years  or  less,  and  of  such  notes  the 
amount  issued  without  specific  authorization  must  not  ex- 
ceed 5  per  cent  of  the  par  value  of  the  outstanding  securi- 
ties of  the  carrier. 

There  is  some  question  concerning  the  extent  of  the 
jurisdiction   over   security   issues   given   to   the   Interstate 


RAILROAD  CAPITAL  129 

Commerce  Commission  by  the  Transportation  Act.  There 
seems  little  doubt  that  the  law  gives  the  Commission  ample 
powers  of  a  restrictive  character.  That  is,  it  may  forbid 
the  issuance  of  securities  which  under  existing  State  laws 
or  regulations  might  be  legally  issued.  But  it  is  question- 
able whether  the  Commission  may  permit  the  issue  of 
securities  forbidden  by  the  law  of  the  State  in  which  a  rail- 
road holds  a  charter  or  forbidden  by  the  terms  of  the  char- 
ter itself.  For  instance,  suppose  the  law  of  a  State  in  which 
a  certain  railroad  is  incorporated  forbids  the  issue  of  a 
stock  dividend.  Does  the  Commission  have  the  authority 
to  permit  that  railroad  to  issue  a  stock  dividend?  If  the 
Commission  possesses  only  restrictive  powers  the  only  way 
in  which  it  may  obtain  complete  discretionary  powers  over 
capitalization  would  be  through  the  enactment  of  legisla- 
tion compelling  the  Federal  incorporation  of  all  railroads 
engaged  in  interstate  commerce.  It  is  not  unlikely  that 
legislation  of  this  character  will  in  time  be  passed. 

A  further  limitation  upon  the  issue  of  securities  by  rail- 
road corporations  is  provided  in  that  part  of  the  Trans- 
portation Act  dealing  with  the  consolidation  of  railroads. 
The  law  stipulates  that  when  two  or  more  carriers  shall 
consolidate  their  properties  into  one  corporation,  the  bonds 
at  par  together  with  the  outstanding  capital  stock  at  par  of 
the  new  corporation  shall  not  exceed  the  value  of  the  con- 
solidated properties  as  determined  by  the  Commission. 
Should  a  law  eventually  be  enacted  to  compel  the  consolida- 
tion of  the  railroads  into  a  limited  number  of  great  sys- 
tems, the  capitalization  of  the  systems  will  doubtless  be 
based  directly  upon  the  valuation  of  the  properties.  A 
capitalization  of  railroads  to  correspond  with  their  actual 
value,  as  determined  by  an  impartial  tribunal,  would  un- 
questionably be  of  much  public  benefit.  The  problem  of 
rate  regulation  would  be  simplified,  and  there  would  be 
fewer  opportunities  for  unscrupulous  speculators  to  indulge 
in  fraudulent  practices. 


130  RAILROAD  TRANSPORTATION 

REFERENCES 

Cleveland,  F.  A.     Funds  and  Their  Uses  (1902). 

Cleveland  and  Powell.  Railroad  Promotion  and  Capitaliza- 
tion (1909). 

.    Railroad  Finance  (1912). 

Meade,  E.  S.     Trust  Finance  (1903). 

Wood,  William  Allen.  Modern  Business  Corporations 
(1906). 

Report  of  the  Industrial  Commissioti,  XIX,  397-419  (1902). 

Interstate  Commerce  Commision.  Statistics  of  Railways  of  the 
United  States  (annual). 

Stocks,  Bonds,  Et>c,  Subject  to  the  Act  to  Regulate  Commerce 
(Senate  Doc.  No.  178,  57  Cong.,  2  sess.,  1903.)  [A  report 
comparing  the  par  and  market  value  of  railroad  securities 
for  the  year  ended  June  30,  1900.] 

Proceedings  of  the  Twenty-third  Annual  Convention  of  the 
National  Association  of  Railway  Commissioners  (1912). 
[Contains  Federal  and  State  laws  regulating  railroads,  and 
a  digest  of  the  important  decisions  of  Federal  and  State 
courts  pertaining  to  these  laws.] 

Report  of  the  Railroad  Securities  Commission  (House  Doc. 
No.  256,  62  Cong.,  2  sess.,  191 1). 

Ripley,  W.  Z.    Railroads:  Finance  and  Organisation   (1915). 

Bonbright,  James  C.    Railroad  Capitalisation  (1920). 


CHAPTER  IX 
EARNINGS,    EXPENSES    AND    DIVIDENDS 

Sources  of  revenue,  131.  Operating  revenues,  131.  Non-operating 
income,  133.  Operating  expenses,  134.  Fixed  charges  and  other 
expenditures,  135.  Net  income  and  dividends,  135.  The  oper- 
ating ratio,  138.  Relation  of  earnings  and  dividends  to  busi- 
ness conditions,  141.     References,  144. 

The  revenues  obtained  by  the  railroad  companies  are 
derived  mainly  from  the  freight  and  passenger  services.  The 
payments  received  from  the  transportation  of  mail  and  ex- 
press matter  are  of  considerable  amounts,  but  as  the  mail 
and  express  cars  are  always  attached  to  passenger  trains, 
the  receipts  which  the  railroads  obtain  from  the  Govern- 
ment and  the  express  companies  for  running  these  cars 
are  credited  to  passenger  train  revenue.  In  connection  with 
both  the  freight  and  passenger  services  there  are  earnings 
not  derived  from  the  operation  of  trains,  such  as  the 
receipts  for  the  rental  of  cars  and  terminal  facilities  of 
various  kinds.  Moreover,  some  railroad  corporations  lease 
their  tracks  to  other  companies  and  own  the  stocks  or  bonds 
of  other  companies — both  railroad  and  industrial — and  the 
rentals  and  the  interest  or  dividends  on  these  investments 
constitute  sources  of  income. 

A  general  grouping  of  railroad  revenues  may  be  made 
into  (1)  those  derived  from  the  operation  of  trains  and 
other  facilities,  and  (2)  those  obtained  from  interest  on 
loans  and  investments  and  rentals.  In  the  accounts  and 
reports  of  railroad  companies  each  of  these  groups  is  divided 
into  several  classes  and  subclasses. 

131 


132 


RAILROAD  TRANSPORTATION 


Analysis  of  operating   revenues  of  Class  I  operating  railroads  for 
the  years  ending   December  31,   igiy  and   iqi6 


Account 


Freight 

Passenger 

Excess  baggage 

Sleeping  car 

Parlor  and  chair  car 

Mail 

Express 

Other  passenger  train 

Milk 

Switching 

Special  service  train 

Other  freight  train 

Water  transfers — freight 

Water  transfers — passenger.  .  . 
Water    transfers — vehicles     and 

live  stock 

Water  transfers— other 


1017 


1016 


Amount 


Total    rail-line    transportation 
revenue 


Freight 

Passenger 

Excess  baggage 

Other  passenger  service . 

Mail 

Express 

Special  service 

Other 


Total  water-line  transportation 
revenue 


Dining  and  buffet 

Hotel  and  restaurant 

Station,  train  and  boat  privileges 

Parcel  room 

Storage — freight 

Storage — baggage 

Demurrage 

Telegraph  and  telephone 

Grain  elevator 

Stockyard 

Power 

Rents    of    buildings    and    other 

property 

Miscellaneous 


Total      incidental      operating 
revenue 


Joint  facility — Cr . 
Joint  facility — Dr . 


Total  joint   facility   operating 
revenue 


Total     railway     operating 
revenues 


$2,819,965,215 

825,211,593 

6.234,382 

2,848,710 

1,508,627 

58,775,765 

106,914,603 

7,120,499 

I6.7S9.I74 

41,421,149 

1,877,034 

386,128 

863,881 

1,762,927 

2,673,250 
1,445.215 


Percent 
of  total 
revenue 


S3. 895. 768, 152 


$12,958,610 

1,454.722 

3.692 

38,802 

29,958 

37,68o 

225 

444.371 


$14,968,060 


$21,720,059 
8,915,269 
4.488,763 
1,208,543 
S.682,785 
759.413 
26,401,148 
2,108,673 
1,948,123 
1,994,915 
2,762,482 

4.934.022 
17.719.503 


$100,583,698 


4.38I.79S 
1, 558,057 


$2,822,838 


$4,014,142,748 


70.25 

20.56 

•  IS 

.07 

.04 

1.46 

2.66 

.18 

.42 

1.03 

.05 

.01 

.02 

.04 

07 
.04 


97  05 


■  37 


•  54 
.  22 
.  II 
.03 

•  14 
.02 

.66 
■  05 
.05 
05 
.07 

.  12 

•  45 


2.51 


.  11 
.04 


07 


Amount 


$2,560,988,111 

706,608,630 

6,064,369 

2.895.797 

1.365.037 

61,195,800 

90,155,445 

5,913,622 

16,115,884 

39,419.827 

1,688,198 

273.619 

652,790 

1,684,367 

2.325,202 

1, 221,751 


$3,498,568,430 


$14,222,511 

1.435.403 

4.524 

56,559 

27,871 

20,753 

1.930 

330,650 


$16,100,201 


$17,466,682 
6,448.258 

3.897.093 
1,050,812 
3,524,463 
669,082 
18,372,713 
1,885,119 
2,231,200 
1,491.392 
2,184,040 

4,464,872 
16,077,259 


$79,762,985 


3.830.343 
1,306.202 


$2,434,141 


100.00 


$3,596,865,766 


Percent 
of  total 
revenue 


71.20 

19.64 

■  17 

.08 

.04 

1.70 

2.51 

.16 

•4S 

1. 10 

•  05 
.01 
.02 

•  os 

.06 

•  03 


9727 


40 
04 


01 


■  45 


48 
.18 
.II 

03 
.10 
.02 

•  SI 

.05 
.06 
.04 
.06 

.12 

•  45 


2.  21 


.11 

.04 


07 


100.00 


EARNINGS,  EXPENSES  AND  DIVIDENDS  133 


The  operating  revenues  are  derived  from  several  sources, 
the  most  important  being  the  transportation  of  freight  and 
passengers.  An  analysis  of  the  revenues  from  rail  opera- 
tions of  operating  railroad  corporations  as  given  in  the  an- 
nual statistical  report  published  by  the  Interstate  Commerce 
Commission,  is  shown  in  the  preceding  table.1  It  will  be 
observed  that  nearly  seven-tenths  of  the  revenue  is  obtained 
directly  from  the  freight  business,  while  less  than  one- 
fourth  comes  from  the  transportation  of  passengers,  and 
only  one  twenty-fifth  from  the  mail  and  express  revenues. 

Non-operating  income  of  Class  I  operating  railroads  for  the  years 
ending  December  31,  1917,  and  1916 


Hire  of  freight  cars — credit  balance 

Rent  from  locomotives 

Rent  from  passenger-train  cars 

Rent  from  floating  equipment 

Rent  from  work  equipment 

Joint  facility  rent  income 

Income  from  lease  of  road 

Miscellaneous  rent  income 

Miscellaneous  non-operating  physical  property  . 

Separately  operated  properties — profit 

Dividend  income 

Income  from  funded  securities 

Income  from  unfunded  securities  and  accounts. 
Income  from  sinking  and  other  reserve  funds.  . 

Release  of  premiums  on  funded  debt 

Contributions  from  other  companies 

Miscellaneous  income 


Total  non-operating  income . 


1917 


$33, 

7, 
12 

3 
I 

24 

4 
8 
3 
2 
122 

44 

24 

2 


349.542 
999,916 
016.887 

493.543 
946,167 
827,433 
172,339 
957.683 

131. 149 
050,342 
560,524 

172,934 
672,263 
,907,967 

75.394 
,752,738 
,630,741 


$302,717,562 


1916 


$20,964,852 

7.540.673 

11,256.786 

200,837 

2.100,142 

24,211,969 

4.382,393 

8,369,241 

2,956,131 

3.230,514 

103,194.671 

50,520,614 

27.035. 177 

2,890,362 

295,801 

1,032.709 

1,616,362 


$271,799,234 


An  analysis  of  the  non-operating  income  of  the  railroads 
of  the  United  States,  as  given  by  the  Interstate  Commerce 
Commission,  is  presented  in  the  table  above. 

1  The  statistical  tables  presented  in  this  chapter  are  for  the  years 
1916  and  1917,  the  two  years  of  private  operation  preceding  the  period 
of  government  control.  Complete  statistical  returns  for  the  first 
year  of  private  operation  following  the  return  of  the  railroads  to 
their  owners  on  March  1,  1920,  have  not  been  published.  While  the 
official  statistics  for  the  year  1918  are  available,  they  offer  no  sat- 
isfactory basis  of  comparison  with  previous  years  because  govern- 
ment operation  necessitated  many  changes  in  the  presentation  of 
financial  statements.  The  finances  of  the  railroads  during  the 
period  of  government  control  will  be  considered  in  a  later  chapter. 


134 


RAILROAD  TRANSPORTATION 


The  operating  expenses  of  a  railroad  are  divided  into 
eight  classes,  the  most  important  of  which  are:  Mainte- 
nance of  way  and  structures,  maintenance  of  equipment, 
traffic  expenses,  transportation  expenses  and  general  ex- 
penses. Each  of  the  eight  classes  is  in  turn  subdivided, 
there  being  no  less  than  196  separate  items  in  the  operat- 
ing expenses  of  Class  I  railroads,  or  those  having  annual 
operating  revenues  in  excess  of  $1,000,000.  The  statistical 
reports  of  the  Interstate  Commerce  Commission  for  1917 
and  1916  show  the  following  summarization  of  railway 
operating  expenses. 

Railway  operating  expenses  of  Class  I  operating   railroads  for  the 
years  ending  December  31,  1917,  and  1916 


1917 

1916 

Amount 

Percent 

of  total 

operating 

expenses 

Amount 

Per  cent 

of  total 

operating 

expenses 

I.   Maintenance  of  way   and 

$  442,109,862 

685,428,913 

64,985,070 

1,506,544,964 

9.443.915 

33.437.644 

95.933.290 

8,558,535 

15.626 
24.225 

2.297 

53.247 

334 

1. 182 

3.391 
.302 

$  421,775,812 

595,566,336 

62,839,996 

1,164,274,088 

9.713.687 

26,858,441 

84,418,107 

8.048,055 

17.891 

II.   Maintenance  of  equipment 

III.  Traffic 

IV.  Transportation — rail  line . 
V.  Transportation — waterline 

VI.   Miscellaneous  operations. . 

VII.  General 

VIII.  Transportation  for  invest- 

25.264 
2.666 

49  388 

.412 

1. 139 

3S8i 

•  341 

Total  operating  expenses. . 

$2,829,325,123 

100.00 

$2,357,398,412 

100.00 

The  second  important  class  of  expenditures  of  railway 
corporations  is  ordinarily  called  "fixed  charges,"  consisting 
of  such  payments  as  the  interest  on  funded  and  floating 
debts,  rentals,  and  appropriations  for  sinking  funds.  The 
first  tabular  statement  on  page  135  shows  the  classification 
and  amount  of  these  expenditures  in  1917  and  1916. 

The  surplus  remaining  after  the  payment  of  fixed  charges, 
operating  expenses  and  taxes  is  designated  as  the  net  income. 
This  amount  represents  the  profits  of  the  business  and  from 


EARNINGS,  EXPENSES  AND  DIVIDENDS  135 


it  are  deducted  the  dividends  on  common  and  preferred 
stock,  the  appropriations  for  additions  and  betterments, 
and  the  appropriations  for  various  reserves  which  a  railway 

Deductions  from  gross  income   of  Class  I  operating  railroads  for 
the  years  ending  December  31,  1917,  and  1916 


Hire  of  freight  cars — debit  balance 

Rent  for  locomotives 

Rent  for  passenger-train  cars 

Rent  for  floating  equipment 

Rent  for  work  equipment 

Joint  facility  rents 

Rent  for  leased  roads 

Miscellaneous  rents 

Miscellaneous  tax  accruals. 

Separately  operated  properties — loss 

Interest  on  funded  debt 

Interest  on  unfunded  debt 

Amortization  of  discount  on  funded  debt . 
Maintenance  of  investment  organization  .  . 
Income  transferred  to  other  companies .  .  . 
Miscellaneous  income  charges 

Total  deductions  from  gross  income 


1017 


1016 


$   53.SS2.I08 

$   43,622,850 

7.090.S8S 

6,644,421 

12,790,170 

11,981,598 

2,792.423 

3,061,272 

579.867 

520,411 

42,957,003 

41,916,686 

132,082,177 

158,377.958 

5.743.377 

5.523.004 

2.134.435 

2,292,698 

5.754.990 

3,451,927 

403.305.438 

406,667,567 

15.704,857 

14,854.425 

2,442,077 

2,893,200 

385.492 

287,015 

1,147,908 

3,702,470 

5,589,696 

5,220,459 

1694,052,603 

I711.017.961 

may  maintain.  Any  surplus  or  deficit  remaining  is  trans- 
ferred as  a  credit  or  debit  to  the  profit  and  loss  account 
of  the  company.  The  disposition  of  the  net  income  of 
the  railways  of  the  United  States  in  1917  and  1916  is  given 
in  the  reports  of  the  Interstate  Commerce  Commission  as 
follows : 

Disposition  of  the  net  inconw.  of  Class  I  operating  railroads  for  the 
years  ending  December  si,  1917,  and   1916 


1917 


1916 


Appropriations  to  sinking  and  other  reserves 

Dividend  appropriations  of  income 

Appropriations  for  investment  in  physical  property 

Stock  discount  extinguished  through  income 

Miscellaneous  appropriations  of  income 

Balance  transferred  to  profit  and  loss 


$   12,122,185 

220,822,373 

47,242,469 

15.382,475 
297,461,104 


J  IS.H7.35S 

187.98s. 355 

62,510,056 

20,359.899 
360,908,008 


All  of  the  receipts  and  disbursements  of  the  railway  cor- 
porations above  described — the  operating  revenues  and  ex- 
penses, the  income  from  other  sources,  the  amount  paid  out 


136 


RAILROAD  TRANSPORTATION 


as  fixed  charges,  the  sums  appropriated  for  dividends  and 
improvements  and  the  balance  carried  to  profit  and  loss — 
are  listed  in  the  income  and  profit  and  loss  statement  of 
the  company.  The  following  table,  which  represents  in  a 
condensed  form  the  income  report  of  the  Class  I  operating 
railroads  of  the  United  States,  summarizes  the  detailed 
statements  previously  given  and  includes  also  a  condensed 
statement  of  the  profit  and  loss  account  of  the  railroads. 

It  must  be  observed  that  while  the  income  account 
shows  the  earnings,  expenses  and  dividends  of  the  lead- 
ing operating   railroads   of   the   United    States,   the   state- 

Condensed  income  and  profit  and  loss  statement  of  Class  I  operating 
railroads  for  the  years  ending  December  31,  1917,  and  1016 


1917 

1916 

Railway  operating  revenues 

$4,014,142,747 
2.829.325,124 

$3,596,865,766 
2.357.398,412 

Railway  operating  expenses 

Net  revenue  from  railway  operations 

$1,184,817,623 

$1,239,467,354 

Railway  tax  accruals 

$213,920,095 
700,090 

$I57.H3.372 
797.486 

Uncollectable  railway  revenues 

Railway  operating  income 

$970,197,438 

$1,081,556,496 

$  69,453.732 
52,401,894 

$  40.833,977 
34,324.932 

Expenses  of  miscellaneous  operations 

Net  revenue  from  miscellaneous  operations .  .  . 
Taxes  on  miscellaneous  operating  property 

$  17,051,838 
2,883,629 

$     6,509,045 
1,966,141 

Miscellaneous  operating  income 

$   14,168,209 

$     4.542.904 

$984,365,647 

$1,086,099,400 

$302,717,562 

$271,799,234 

Gross  income 

$1,287,083,209 

$1,357,898,634 

$694,052,603 

$711,017,961 

Net  income 

$593,030,606 

$646,880,673 

Profit  and  loss: 

Total  credits  during  year 

$464,270,561 
310,369.370 

$416,488,234 
250,923.185 

$153,901,191 

$165,565,049 

Balance  at  beginning  of  year 

$1,282,208,129 

$1,096,353,229 

Balance  at  end  of  year 

$1,436,109,320 

$1,261,918,278 

EARNINGS,  EXPENSES  AND  DIVIDENDS  137 


ment  would  have  to  be  changed  considerably  before  it  could 
be  made  to  apply  to  these  railroads  considered  as  a  single 
large  system.  In  the  first  place  it  would  be  necessary 
to  eliminate  certain  intercorporate  payments  such  as  the 
sums  received  for  the  lease  of  roads,  and  as  interest  on 
bonds  and  dividends  on  stock,  because  these  sums  rep- 
resent merely  the  transfer  of  funds  from  one  company  to 
another — from  one  part  of  the  railway  system  to  another. 
Furthermore,  in  the  income  account  for  the  railroads,  con- 
sidered as  a  single  system,  it  would  be  necessary  to  include 
the  financial  statements  of  non-operating  companies,  inas- 
much as  they  have  certain  expenses  such  as  taxes  and 
salaries,  and  certain  receipts  other  than  those  received  for 
the  lease  of  their  railway  properties,  which  must  be  con- 

Income  and  profit  and  loss  statement  of  the  railroads  of  the  United 

States,  considered  as  one  system,  for  the  year  ending 

December  j/,   1917 


$4,178,784,652 
2,957.770,809 

$1,222,013,843 

$227,301,093 

711,879 

$994,000,871 

$26,573,773 

$967,427,008 

$101,808,148 

Gross  income,  after  deducting  operating  expenses,  taxes,  equip- 

$1,069,235,246 

Net  interest  on  funded  and  unfunded  debt 

$475,646,748 

24,371,700 

$569,216,798 

Net  dividends  (including  dividend  appropriation  of  surplus) 

$293,291,805 

$275, 924, 99  % 

The  "net  railway  operating  income"  as  computed  in  the  preceding  table,  for  the 
three  years  ending  June  30,  1917,  was  the  basis  for  computing  the  "standard  return" 
which  the  government  paid  to  the  railroad  companies  during  the  period  of  government 
operation. 


138  RAILROAD  TRANSPORTATION 

sidered.  The  preceding  table  gives  in  condensed  form  the 
income  account  for  1917  of  the  railroads  of  the  United 
States,  with  their  operating  and  non-operating  subsidiaries, 
considered  as  a  single  system. 

Of  the  $4,014,142,747  received  by  Class  I  railroads  in 
1917,  as  operating  revenue,  $2,829,325,124,  or  70.48  per 
cent,  was  paid  out  for  operating  expenses.  The  arithmetical 
relation  between  the  expenses  and  revenues  of  operation, 
which  is  commonly  known  as  the  operating  ratio,  is  a  signifi- 
cant figure  to  all  railroad  officials  and  holders  of  railroad 
securities.  A  decline  in  the  ratio  usually  means  that  the 
profits  of  the  company  are  growing,  while  an  increase 
indicates  that  there  will  be  a  reduced  sum  of  money  avail- 
able to  apply  to  interest  charges  and  to  dividends.  When 
the  operating  ratio  rises  steadily  for  a  period  of  years  it  is 
a  warning  signal  to  railroad  managers  that  expenses  must 
be  reduced  or  the  total  receipts  increased.  If  neither  of 
these  alternatives  is  possible,  profits  will  disappear,  and 
perhaps  the  railroad  may  be  compelled  to  face  bankruptcy 
because  of  inability  to  meet  fixed  charges.  If  the  situa- 
tion is  due  to  a  growth  of  necessary  operating  expenses  at 
a  rate  proportionally  greater  than  the  rate  of  increase  of 
traffic,  the  only  step  which  can  be  taken  to  preserve  the 
credit  of  the  railroads  is  to  increase  the  charges  for  trans- 
porting freight  and  passengers. 

The  net  income  of  the  Class  I  operating  railroads  of  the 
United  States  in  1917  was  $593,030,606,  of  which  sum 
$220,822,373  was  paid  in  dividends.  A  part  of  the  divi- 
dends was  paid  to  other  railroad  companies,  thus  making 
the  net  dividend  received  by  individuals  and  corporations 
other  than  railroads  somewhat  less  than  the  figures  given. 
The  1917  surplus  was  $297,461,104. 

As  was  stated  in  the  previous  chapter,  less  than  one- 
half  the  railroad  stock  of  the  United  States  received  divi- 
dends in  1900.    In  1917,  63.32  per  cent  of  the  stock  shared 


EARNINGS,  EXPENSES  AND  DIVIDENDS  139 

in  dividends,  though  nearly  one-third  of  the  amount  paid 
out  as  dividends  came  from  surplus  funds,  and  not  from 
current  income.  The  prosperous  times  since  1897  have 
greatly  increased  the  receipts  of  railway  securities,  partic- 
ularly of  the  stocks.  The  large  issues  of  watered  stock 
chiefly  account  for  the  fact  that  such  a  percentage  of  the 
stocks  yield  no  income ;  indeed,  one  of  the  chief  purposes  of 
stock  watering  is  to  secure  larger  present  investments  by 
speculative  capitalists  and  to  anticipate  the  future  increase 
in  the  value  of  the  property,  the  present  earning  capacity 
of  which  has  been  overcapitalized. 

The  accompanying  chart  shows  graphically  for  28  years, 
1890  to  1918,  the  gross  earnings  of  American  railroads,  the 
revenue  from  the  freight  service,  the  operating  expenses, 
and  the  income  available  for  dividends.  The  income  ac- 
counts of  railroad  reports  are  an  accurate  index  of  general 
business  conditions.  During  the  prosperous  years  of  1890, 
1891,  and  1892  gross  earnings  rose  rapidly,  and  then  with 
the  financial  depression  which  began  in  1893  they  fell 
off  sharply.  The  position  held  in  1892  was  not  regained 
until  near  the  close  of  1897,  after  which  time  the  increase 
in  earnings  was  continuous  and  rapid  until  1908,  when  an- 
other short  period  of  business  depression  occurred.  By 
1910,  total  receipts  were  larger  than  ever  before,  and 
during  the  next  three  years  there  was  a  steady  increase. 
The  fiscal  year  ending  June  30,  1914,  showed  a  decline  in 
the  gross  and  net  earnings  of  railroads,  and  the  fiscal  year 
of  191 5  was  likewise  a  poor  year  for  the  railroads.  During 
the  latter  part  of  191 5  traffic  began  to  increase  very  rapidly, 
and  during  the  calendar  year  of  1916,  with  the  huge  traffic 
of  export  goods  destined  for  the  warring  nations  of  Europe, 
the  railroads  of  the  United  .States  had  the  most  prosperous 
year  in  their  history.  Following  1916  traffic  continued  to 
grow,  but  operating  expenses  advanced  more  rapidly  than 
gross  receipts.   During  the  entire  period  of  government  op- 


140 


RAILROAD  TRANSPORTATION 


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EARNINGS,  EXPENSES  AND  DIVIDENDS  141 

eration  the  railroads  failed  to  earn  the  "standard  return," 
because  the  Railroad  Administration  failed  to  make  an  ad- 
vance in  rates  commensurate  with  the  increase  of  wages 
and  other  operating  costs. 

Other  less  obvious  facts  are  illustrated  by  the  chart.  As 
gross  earnings  rose  rapidly  from  1890  to  1893,  the  net  in- 
come available  for  dividends  rose  very  slowly  and  actually 
declined  in  1892.  The  increased  receipts  were  being  ab- 
sorbed by  the  fixed  charges  and  the  operating  expenses, 
especially  by  the  latter.  It  being  the  practice  of  American 
companies  to  pay  for  additional  equipment,  for  improve- 
ments and  new  construction  largely  from  earnings,  as  well 
as  from  the  sale  of  bonds  and  stock,  a  portion  of  the 
earnings  during  prosperous  times  is  used  in  betterments 
and  extensions.  What  occurred  during  the  three  years 
preceding  1893  took  place  on  a  much  larger  scale  during 
the  ten  years  following  1897,  gross  receipts  advancing  at 
a  considerably  more  rapid  rate  than  net  corporate  income. 
From  1910  to  1912,  notwithstanding  a  considerable  in- 
crease in  gross  receipts,  the  net  corporate  income,  because 
of  heavy  operating  expenses,  increased  taxes,  and  large 
fixed  charges,  actually  declined  more  than  $100,000,000. 

A  comparison  of  the  curve  representing  freight  revenues 
with  that  representing  operating  expenses  shows  that  when 
earnings  decline  it  is  not  possible  to  curtail  operating  ex- 
penses to  an  equal  degree.  Likewise,  when  there  is  a 
large  increase  in  earnings  the  operating  expenses,  includ- 
ing the  expenditures  for  additions  and  betterments,  do  not 
always  rise  with  equal  rapidity.  A  large  railway  business 
is  relatively  less  expensive  than  a  small  one. 

The  earnings  of  the  railroads  have  been  favorably  affected 
in  recent  years  by  many  mechanical  improvements  and 
their  resultant  economies.  In  1897  the  average  number  of 
ton-miles  per  freight  train  mile  was  204;  in  1900  it  was  271, 
and  in  191 7  it  was  597.    The  average  earnings  per  mile  run 


142 


RAILROAD  TRANSPORTATION 


by  a  freight  train  in  1897  were  $1.65;  in  1900,  $2;  and  in 
1 91 7,  $4.27.  While  both  the  train  load  and  the  earnings  have 
been  increased  during  the  last  few  years  because  of  the  large 
volume  of  traffic,  they  have  also  been  favorably  affected  by 
improvements  in  track,  equipment  and  management,  the  in- 
fluence of  which  upon  earnings  will  be  permanent. 

Comparative  revenue  account  per  mile  of  line  operated,  for  specified 

years 


Per  mile  of  line  operated 

Item 

1896 

1900 

1904 

1906 

1908 

1910 

1912 

1914 

1916 

1917 

Gross    earnings 

from  operation . 

Less  operating  ex- 

$6,320 

4.248 

7.722 
4.993 

9.306 
6.308 

10,460 
6,912 

10,491 
7.320 

11.553 

7.658 

11,482 
7.968 

12,387 
8.944 

14,678 
9,362 

17.234 
12,140 

Net  revenue  from 

$2,072 

2,729 

2,998 

3,548 

3. I7i 

3.895 

3.SI4 

3.443 

S.046 

5.09S 

The  combined  effects  of  economies  in  operation  and  of  a 
large  volume  of  traffic  are  indicated  by  the  average  earn- 
ings per  mile  of  line.  The  facts  for  a  number  of  years 
since  1896  are  shown  in  the  table  on  this  page.  By  com- 
paring this  table  with  the  preceding  chart,  it  will  be  seen 
that  the  facts  regarding  changes  in  earnings  and  operating 
expenses  per  miles  are  nearly  the  same  as  those  for  the 
railroad  system  considered  as  a  whole.  The  changes  in 
mileage  have  not  been  responsible  for  the  changes  in  aver- 
age earnings  and  expenses  per  mile. 

When  the  net  earnings  of  a  railroad  are  small,  its  stock 
will  sell  at  a  low  figure,  and  its  bonds  will  not  be  sought 
after  by  investors.  The  price  of  securities  rises  with  the 
increase  of  earnings,  but  the  two  movements  are  not  usually 
parallel.  Larger  net  earnings  come  during  periods  of  pros- 
perity, and  it  is  then  that  speculation  is  very  active;  so 
active,  indeed,  as  usually  to  make  the  prices  of  the  stocks 
most  dealt  in  rise  much  higher  than  the  gain  in  earnings 


EARNINGS,  EXPENSES  AND  DIVIDENDS     143 

would  seem  to  justify.  Similarly  when  net  earnings  fall 
off  the  speculative  demand  for  the  securities  affected  sud- 
denly ceases  and  their  prices  drop  out  of  proportion  to  the 
decline  in  earnings.  The  fluctuation  in  market  value  is 
much  less  for  bonds  than  for  stocks,  but,  nevertheless, 
bonds  are  affected  to  a  considerable  degree  by  speculation, 
because  speculation  in  the  stock  may  result  in  changes  of 
policy  as  regards  capitalization  or  management  that  will 
seriously  affect  the  value  and  marketability  of  bonds. 

The  purchase  of  the  stocks  and  bonds  of  most  railway 
companies  is  usually  considered  a  risky  venture  for  per- 
sons seeking  a  safe  and  permanent  investment.  There 
are  several  companies,  however,  whose  bonds  find  compara- 
tively ready  sale  to  insurance  companies,  savings  banks, 
trust  companies,  and  other  fiduciary  organizations  having 
funds  to  invest,  and  there  are  a  few  companies  whose  stocks 
are  even  considered  fairly  safe.  In  general,  there  has  been 
a  marked  improvement  in  the  merits  of  railroad  securities 
as  forms  of  investments,  but  speculation  in  them  is  still 
so  active  and  so  little  restricted  by  public  regulation  as  to 
make  them  less  satisfactory  and  less  beneficial  socially  than 
they  might  be  as  repositories  of  the  savings  of  the  public. 

REFERENCES 

Interstate   Commerce   Commission.     Statistics   of  Railways  in 

the  United  States  (annual). 
Report  of  Industrial  Commission,  XIX,  267-272   (1902). 
Ripley,  W.  Z.    Railroads:  Finance  and  Organisation  (1915). 


PART  II 
THE  RAILROAD  SERVICE 


CHAPTER  X 

THE  FREIGHT  SERVICE-CLASSIFICATION  OF  FREIGHT 

The  freight  business  the  most  important  railroad  service,  147 
Volume  of  freight  traffic  in  the  United  States,  148.  Classifica- 
tion of  freight,  149.  The  three  great  classifications,  150.  Com- 
modity tariffs,  155.  Uniform  classification,  156.  How  an  agent 
ascertains  rates  on  class  and  commodity  freight,  158.  Through 
and  local  freight,  159. 

The  transportation  service  performed  by  the  railroads 
includes  the  movement  of  freight,  the  carriage  of  persons, 
and  the  transmission  of  mail  and  express  matter.  Each 
of  these  services  merits  careful  consideration. 

Whether  viewed  from  the  standpoint  of  public  bene- 
fit or  considered  with  regard  to  the  volume  of  business 
done  and  profits  received  by  the  company,  the  transpor- 
tation of  freight  is  the  most  important  service  performed 
by  the  railroad.  The  income  from  the  passenger  busi- 
ness is  about  22  per  cent  of  the  total  earnings  and  income 
of  the  railroads  in  the  United  States,  while  the  receipts 
from  the  freight  amount  to  seven-tenths.  Moreover,  social 
welfare  is  more  dependent  upon  cheap  and  unfettered 
movement  of  commodities  than  upon  inexpensive  and  speedy 
means  of  travel;  for,  however  important  it  may  be  that 
the  relatively  few  people  who  may  at  any  one  time  desire 
to  take  a  journey  should  be  able  to  reach  their  destination 
promptly  and  comfortably,  it  is  of  incalculably  greater 
consequence  that  producers  should  be  able  to  dispose  of  the 
commodities  upon  the  sale  of  which  their  livelihood  de- 
pends and  that  consumers  should  have  the  power  of  draw- 

147 


148  RAILROAD  TRANSPORTATION 

ing  upon  distant  as  well  as  near  sources  of  supply  for  the 
satisfaction  of  their  wants  and  the  gratification  of  their 
desires. 

The  volume  of  freight  transported  increases  rapidly  with 
the  progress  of  civilization  and  the  diversification  of  men's 
wants.  The  freight  business  is  carried  on  to  enable  men 
to  secure  what  they  want ;  and  the  more  complex  their 
demands  the  more  goods  will  be  produced  and  transported. 
The  growing  demand  for  the  freight  service  has  furnished 
a  most  powerful  stimulus  to  inventors  and  engineers  to 
lessen  the  obstacles  to  the  movement  of  commodities  by 
improving  the  tracks,  cars,  and  locomotives,  and  making 
other  changes  in  the  railroad  mechanism  whereby  the  costs 
of  transportation  have  been  reduced  to  their  present  small 
amount.  Whether  the  endeavors  of  railroad  companies  to 
increase  the  speed  of  their  passenger  trains  or  their  efforts 
to  lessen  the  costs  of  freight  movement  have  been  the  more 
potent  incentive  to  mechanical  improvements,  it  would  be 
impossible  to  say;  but  the  results  accruing  to  society  from 
those  improvements  have  come  more  largely  from  the 
greater  facilities  for  the  shipment  of  goods. 

During  the  year  ending  December  31,  1918,  Class  I  rail- 
roads in  the  United  States  reported  a  freight  traffic  of 
2,305,824,940  tons  of  revenue  freight.  This  is  a  greater  ton- 
nage than  shippers  actually  turned  over  to  the  roads,  because 
the  same  freight  is  often  handled  by  more  than  one  road, 
and  duplications  result  from  taking  the  total  of  all  the  traf- 
fic of  all  the  companies.  After  making  deductions  necessary 
to  eliminate  the  duplications,  it  is  found  that  the  traffic 
actually  received  from  shippers  during  the  year  amounted 
to  1,262,621,054  tons.  The  average  distance  traveled  by 
each  ton  of  freight  was  300  miles,  and  the  number  of  tons 
carried  a  mile — or  the  "ton  mileage" — was  405,379,284,206. 
To  handle  that  vast  tonnage  required  nearly  50,000  freight 
and  switching  locomotives  and  nearly  2,500,000  freight  cars. 


CLASSIFICATION  OF  FREIGHT  149 

The  mines  from  which  the  coal,  iron  ore,  and  other  min- 
erals are  taken  furnish  more  than  half  the  tonnage  handled 
by  the  railroads,  but  as  this  traffic  is  carried  at  low  rates 
per  ton  the  receipts  from  this  business  amount  to  much 
less  than  half  the  total  freight  revenue  of  the  railroads. 
Manufactures  supply  nearly  one-sixth  of  the  tonnage,  the 
products  of  the  forest  about  one-tenth,  and  the  products  of 
agriculture  about  one-tenth.  The  remainder  of  the  traffic, 
comprising  slightly  less  than  one-tenth  of  the  total,  consists 
of  animal  products,  general  merchandise,  and  miscellaneous 
unclassified  commodities.  There  are  no  figures  obtainable 
regarding  the  value  of  the  goods  which  the  railroads  trans- 
port, but  if  their  value  does  not  average  more  than  $25 
a  ton,  their  total  worth  would  be  nearly  $32,000,000,000. 

The  articles  comprised  under  the  seven  headings  men- 
tioned in  the  preceding  paragraph  include  many  thousand 
kinds  of  commodities.  In  order  to  establish  a  basis  for 
fixing  rates  of  charges  for  transportation  it  is  necessary 
for  the  railroad  companies  to  divide  these  commodities  into 
a  small  number  of  groups  or  "classes."  To  quote  a  separate 
rate  between  each  two  termini  on  each  one  of  the  10,000 
to  15,000  commodities  would  be  an  almost  impossible  task, 
and  even  if  performed,  the  resulting  schedule  of  rates  would 
be  utterly  confusing  both  to  freight  agents  and  to  shippers. 
The  classification  of  freight  traffic  greatly  simplifies  the 
work  of  rate-making. 

The  practice  of  classifying  freight  is  very  old.  On  the 
early  wagon  routes,  freight  was  very  crudely  classified 
into  light  and  heavy  articles,  the  former  paying  by  the 
cubic  foot  and  the  latter  by  the  hundred  pounds.  In  the 
schedules  of  charges  upon  the  early  English  and  American 
canals  more  detailed  classifications  were  made.  The  pioneer 
American  railroads  naturally  adopted,  with  some  modifica- 
tions, the  freight  classifications  of  the  canal  companies. 

During  the  first  half   century   of    railroad   development 


150  RAILROAD  TRANSPORTATION 

it  was  customary  for  each  company  to  have  a  classification 
of  its  own.  At  one  time  there  were  138  distinct  classi- 
fications in  eastern  trunk-line  territory,  and  shortly  previous 
to  the  enactment  of  the  Interstate  Commerce  Act  of  1887 
there  were  130.  No  shipper,  unless  he  was  a  rate  expert, 
could  determine  in  advance  what  his  rates  would  be  or 
what  rates  were  supposedly  paid  by  his  competitors.  How- 
ever, with  the  growth  of  long-distance  traffic  and  of  the 
need  for  through  rates,  through  routes  and  through  way- 
bills, there  developed  in  the  early  eighties  a  definite  move- 
ment toward  securing  a  greater  degree  of  uniformity  of 
freight  classification.  The  prohibition  of  unreasonable  dis- 
crimination by  the  Interstate  Commerce  Act  of  1887  and 
the  rulings  of  the  commission  stimulated  the  movement, 
as  it  was  recognized  by  the  railroads  that  they  could  not 
observe  the  law  unless  a  more  nearly  uniform  system  of 
classification  was  devised.  Early  in  1887  the  leading  rail- 
way lines  operating  in  eastern  trunk-line  territory  adopted 
a  common  classification,  and  by  the  end  of  1889  the  south- 
ern railway  lines  and  the  western  lines  had  taken  similar 
action.  The  three  great  classifications  adopted  at  that  time 
are  still  in  existence,  though  they  have  been  revised  and 
modified  many  times.  By  them  most  of  the  railway  busi- 
ness of  the  country  is  handled. 

These  three  classifications,  known  as  the  Official,  the 
Southern  and  the  Western,  are  limited  to  fairly  definite 
territories.  The  Official  applies  to  traffic  within  the  region 
north  of  the  Ohio  and  Potomac  rivers,  including  New  Eng- 
land, and  east  of  Lake  Michigan  and  a  line  drawn  from 
Chicago  through  Peoria  to  St.  Louis  and  the  mouth  of  the 
Ohio  River.  The  Southern  is  in  force  in  the  region  south 
of  the  Ohio  and  Potomac  and  east  of  the  Mississippi ;  while 
the  Western  applies  west  of  the  other  two.  Occasionally, 
however,  the  classifications  overlap.  Shipments  from  a  point 
located  near  a  classification  boundary  are  usually  governed 


CLASSIFICATION  OF  FREIGHT  151 

by  but  one  classification,  that  of  the  point  of  destination. 
St.  Louis,  for  instance,  though  located  in  Western  classifi- 
cation territory,  uses  the  Official  Classification  for  east- 
bound  freight  and  the  Southern  for  southbound  freight.  In 
a  few  regions  the  three  great  classifications  are  supple- 
mented or  displaced  by  others.  In  several  States — Florida, 
Georgia,  Illinois,  Iowa,  Louisiana,  Texas,  Virginia  and  some 
others — classifications  applicable  only  to  intrastate  traffic 
have  been  established. 

The  three  large  classifications  are  not  made  directly  by 
the  carriers  but  by  classification  committees.  Formerly  the 
committee  in  each  territory  was  made  up  of  a  number  of 
traffic  officials,  representing  the  various  railway  companies. 
Meetings  of  a  committee  would  be  held  at  regular  inter- 
vals, but  so  infrequently  that  it  was  impossible  for  shippers 
to  secure  speedy  consideration  of  matters  which  they  pre- 
sented. In  1914  the  organization  of  the  Western  Classi- 
fication Committee  was  entirely  changed,  the  large  com- 
mittee being  superseded  by  a  committee  of  three  members, 
who  sit  in  constant  session  and  give  their  entire  time  to  the 
work  of  classification.  The  members  of  the  committee 
are  not  employed  by  or  identified  with  any  individual  road, 
but  are  chosen  by  the  joint  action  of  the  interested  carriers. 

Early  in  1916  the  Official  Classification  Committee  was 
reorganized  in  a  similar  manner,  the  former  committee  of 
fifteen  traffic  officials  representing  the  lines  in  eastern  terri- 
tory, being  replaced  by  a  committee  consisting  of  a  chair- 
man and  three  associate  members.  This  committee  is  ready 
at  all  times  to  confer  informally  with  carriers  or  shippers 
concerning  classification  changes,  and  it  holds  regular  bi- 
monthly hearings  at  New  York  and  Chicago  to  consider 
proposed  changes  in  or  additions  to  the  Official  Classifica- 
tion. The  decisions  of  the  committee,  unlike  those  of  the 
Western  Classification  Committee,  are  not  final,  but  must 
be  submitted  to  the  railroad  companies  for  approval.     The 


152  RAILROAD  TRANSPORTATION 

Southern  Classification  Committee  altered  its  form  of  or- 
ganization in  1917,  to  resemble  the  form  adopted  by  the 
other  committees.  Each  committee  has  permanent  offices, 
the  Official  Classification  Committee  having  headquarters 
in  New  York,  the  Southern  in  Atlanta,  and  the  Western 
in  Chicago. 

Previous  to  1919  each  classification  committee  published  a 
classification  book  applying  to  its  particular  territory.  In  De- 
cember, 1 91 9,  while  the  Federal  Government  was  operating 
the  railroads  the  three-book  system  was  dispensed  with,  and 
all  three  classifications  published  in  a  single  volume,  known 
as  the  Consolidated  Classification.  The  second  issue  of  the 
Consolidated  Classification  became  effective  April  1,  1921. 
It  constitutes  the  46th  issue  of  the  Official  Classification, 
the  45th  issue  of  the  Southern,  and  the  57th  issue  of  the 
Western. 

Though  the  three  great  classifications  are  all  now  pub- 
lished in  a  single  volume,  they  are  by  no  means  uniform. 
They  have  the  same  rules,  with  a  few  minor  exceptions,' 
and  the  description  of  articles  is  the  same  for  all  three. 
But  each  retains  its  own  peculiar  system  of  classifying. 
The  Official  Classification  contains  six  numbered  classes,  a 
Rule  25  class  and  a  Rule  26  class.  Some  articles  are  listed 
as  1,  1%,  2,  2.y2,  3,  or  4  times  first  class,  so  that  in  reality 
there  are  fourteen  classes  in  the  Official  Classification.  The 
Southern  Classification  provides  for  six  numbered  and  four 
lettered  classes,  with  some  articles  rated  as  ij4>  iy2,  2,  2^, 
3  and  4  times  first  class,  while  the  Western  Classification 
has  five  numbered  and  five  lettered  classes,  with  various 
articles  listed  as  l%,  1%,  2,  2^4,  3,  3^2  and  4  times  first 
class. 

The  number  of  articles  listed  in  the  Consolidated  Classi- 
fication book  is  approximately  14,000,  though  the  number 
of  ratings  is  much  greater  than  that  in  each  classification. 
The  same  article  is  very  often  placed  in  two  or  three  or 


CLASSIFICATION  OF  FREIGHT  153 

even  more  classes,  the  classification  varying  with  the  man- 
ner in  which  the  goods  are  packed  or  otherwise  prepared 
for  shipment  and  with  the  quantity  in  which  they  are 
offered  to  the  railroad.  The  class  to  which  a  commodity 
is  assigned,  and  consequently  the  rate  it  must  pay,  are  made 
lower  for  the  carload  quantity  than  for  smaller  consign- 
ments. The  reason  for  this  is  that  business  can  be  done 
on  a  large  scale  more  economically  than  on  a  small  scale. 
The  producer  who  ships  in  carload  quantities  can  usually 
supply  the  railroad  not  only  with  a  large  amount  of  freight, 
but  with  a  regular  volume  of  business,  and  can  thereby 
enable  the  carrier  to  perform  the  service  at  much  less 
cost  per  ton  than  business  can  be  handled  for  the  small 
shipper.  A  certain  minimum  weight  is  stipulated  for  all 
carload  shipments,  the  minimum  weight  usually  approxi- 
mating the  weight  of  the  article  which  can  be  loaded  in  a 
car.  For  a  large  number  of  the  lighter  articles  of  freight 
the  classification  provides  that  the  minimum  weight  shall 
vary  according  to  the  length  of  the  car  used.  The  minimum 
weight  to  be  observed  for  cars  of  various  lengths  are  given 
in  Rule  34  of  the  classification,  and  the  articles  to  which 
this  rule  applies  are  always  indicated  in  the  body  of  the 
classification  by  the  phrase,  "Subject  to  Rule  34." 

The  class  given  an  article  affects  the  rate  of  freight 
it  must  pay,  those  commodities  grouped  as  first  class  or- 
dinarily paying  a  higher  rate  than  those  catalogued  as 
second  class,  the  second  class  articles  paying  heavier  charges 
than  those  listed  as  third  class,  and  so  on.  The  class  to 
which  particular  items  are  assigned  is  determined  by  a 
variety  of  considerations.  In  general  it  is  determined  by 
what  rate  the  article  should  pay  in  order  to  remunerate  the 
railroad  for  the  expenses  involved  in  its  transportation,  and 
also  by  what  rate  the  article  can  pay — that  is,  whether  it 
is  a  commodity  of  high  value  for  the  transportation  of  which 
shippers  can  afford  to  pay  a  relatively  high  rate.     Articles 


154 


RAILROAD  TRANSPORTATION 


are  put  into  higher  classes  if  their  transportation  is  espe- 
cially expensive  to  the  railroads  and  if  the  value  of  the 
service  to  the  shipper  is  large.  The  classification  of  freight 
is  closely  connected  with  the  subject  of  rates,  and  the 
factors  determining  the  classification  of  commodities  will 
be  indicated  more  fully  in  the  chapters  on  rates. 

To  illustrate  the  manner  in  which  commodities  are  actu- 
ally grouped  in  freight  classifications  and  to  bring  out 
some  of  the  facts  influencing  the  rating  of  commodities, 
there  have  been  compiled  in  the  following  table  a  few  ex- 

Extracts  from  Consolidated  Classification  No.  2 


Asbestos  Doors,  glazed: 

In  crates,  L.C.L 

In  boxes,  L.C.L 

In  packages  named,  C.L.,  minimum 
weight,  30,000  lbs 

Magazines  or  Periodicals: 

In  bags,  barrels,  boxes  or  wrapped 
bundles,  L.C.L 

In  packages  named,  C.L.,  minimum 
weight,  24,000  lbs.,  subject  to  Rule 
34 

Chains: 

Automobile  Tire — 

In  bags,  L.C.L 

In  barrels  or  boxes,  L.C.L 

In  packages  named,   C.L.,   mini- 
mum weight,  30,000  lbs 

Key  blanks,  iron  or  steel: 

Finished,  in  barrels  or  boxes 

In  the  rough,  unfinished,  in  barrels 
or  boxes 

Monuments,  metal,  N.O.I.B.N.,  in  boxes 
or  crates 


Di 
1 


2 
3 


3 
R26 


Ratings 


Official        Southern      Western 


2 
3 


2 

3 


2 
2 


2 

3 


CLASSIFICATION  OF  FREIGHT  155 

tracts  from  an  issue  of  the  Consolidated  Classification.  The 
commodities  are  taken  at  random  from  the  detailed  classi- 
fication comprising  about  14,000  items. 

It  is  evident  from  the  above  brief  table  that  the  classifica- 
tion of  commodities  is  influenced  by  the  space  they  occupy, 
and  is  also  made  to  depend  upon  the  value  of  the  articles. 
The  expense  of  transportation  to  the  shipper  is  made  to 
vary  with  reference  to  the  value  of  the  commodities,  and 
is  in  most  cases  conditioned  upon  the  quantity  of  shipment. 
The  difference  in  classification,  and  consequently  in  freight 
charges,  between  less-than-carload  and  carload  quantities 
is  a  wide  one,  much  greater  than  the  variation  in  classi- 
fication and  rates  for  the  lower  groups. 

It  is  never  practicable  to  classify  all  commodities,  and 
every  railroad  transports  many  articles — as,  for  example, 
live  stock  and  coal — at  special  or  commodity  tariffs.  The 
articles  thus  treated  are  invariably  handled  in  carload  lots, 
and  in  many  cases  they  are  not  included  in  the  classification, 
because  special  conditions  of  competition  between  the  rail- 
ways and  the  carriers  by  water  require  that  the  articles 
should  be  especially  favored  by  the  railroads  in  order  to 
prevent  the  diversion  of  the  traffic  to  the  lake  or  ocean 
vessels.  The  competition  between  the  railroads  engaged 
in  transcontinental  traffic  and  the  lines  of  vessels  navigated 
between  the  two  seaboards  gives  rise  to  a  well-known  in- 
stance of  the  exemption  from  classification  of  a  large  num- 
ber of  commodities.  A  reason  which  very  frequently  in- 
fluences a  railroad  to  exempt  a  commodity  from  classi- 
fication is  the  desire  of  the  railroad  to  foster  the  develop- 
ment of  new  and  special  industries.  Men  who  are  engaging 
in  new  forms  of  production  or  are  opening  up  previously 
undeveloped  resources  are  constantly  beseeching  the  railroad 
companies  for  special  or  commodity  tariffs.  The  railroad 
companies  thus  besought  by  the  shippers  frequently  have 
difficulty  in  deciding  what  course  to  follow.     The  railroad 


156  RAILROAD  TRANSPORTATION 

is  always  desirous  of  promoting  as  far  as  possible  the 
industrial  development  of  the  section  of  country  which 
it  serves,  but  it  is  at  the  same  time  equally  desirous  of 
maintaining  a  schedule  of  freight  charges  high  enough 
to  yield  the  owners  of  the  railroad  a  fair  profit  upon  their 
investments.  The  shipper  desires  to  secure  the  lowest  pos- 
sible rate ;  the  railroad  company  endeavors  to  maintain 
a  profitable  rate.  Generally,  however,  the  shipper  succeeds 
in  getting  the  commodity  tariff.  In  1921  the  Pennsylvania 
Railroad  Company  had  approximately  700  commodity  tariffs 
in  force  on  its  lines  east  of  Pittsburgh,  Erie  and  Buffalo. 
Efforts  have  been  made  to  unify  the  several  freight 
classifications  now  in  force  and  to  substitute  for  them 
one  uniform  classification.  If  this  could  be  done  success- 
fully it  would  be  highly  desirable,  because  it  would  enable 
producers  of  all  commodities  in  different  parts  of  the 
country  to  know  accurately  what  would  be  the  cost  of 
getting  their  commodities  to  the  market  and  how  much 
freight  they  would  have  to  pay  upon  the  supplies  brought 
to  them  by  the  railroads.  The  unification  of  the  classifica- 
tion would  also  make  it  easier  for  shippers  and  for  the 
state  to  detect  discriminations.  The  enforcement  of  a 
published  schedule  of  rates  and  the  equal  treatment  of  all 
shippers  could  be  much  more  readily  brought  about.  Many 
people,  including  the  members  of  the  Interstate  Commerce 
Commission,  have  favored  Federal  laws  requiring  the  rail- 
roads to  adopt  a  uniform  classification,  and,  in  the  case 
of  their  failure  to  do  so,  empowering  the  Interstate  Com- 
merce Commission  to  promulgate  such  a  classification.  Such 
a  law  came  near  being  enacted  in  1889 ;  but  Congress,  upon 
the  advice  of  the  Interstate  Commerce  Commission,  which 
thought  the  time  had  not  then  arrived  for  compulsory  ac- 
tion, gave  the  railroad  companies  an  opportunity  to  attempt 
to  work  out  a  single  classification  for  the  entire  country.  An 
earnest  effort  was  made  by  the  railroad  companies  during 


CLASSIFICATION  OF  FREIGHT  157 

the  succeeding  two  years  to  accomplish  this  result.  The 
attempt,  however,  was  unsuccessful.  In  1907  the  question 
of  uniform  classification  was  again  taken  up  seriously  by  the 
railways  and  a  committee  of  fifteen  members,  consisting 
of  five  from  each  great  classification  territory,  was  appointed 
to  consider  whether  a  uniform  classification  could  be  devised 
and  to  suggest  a  mode  of  procedure.  This  committee, 
after  three  months  of  investigation  and  deliberation,  re- 
ported that  "while  establishment  of  a  uniform  classification 
is  impracticable  at  this  time,  it  can  ultimately  be  worked 
out  along  intelligent  and  satisfactory  lines."  It  suggested 
as  a  preliminary  step  the  unification  of  classification  rules, 
of  descriptions  of  articles  and  of  minimum  carload  weights, 
and  recommended  that  a  "uniform  classification  committee" 
be  appointed  to  undertake  this  work.  Accordingly  an  execu- 
tive committee  of  21  traffic  officials  was  appointed  by  the 
carriers,  and  that  committee  selected  a  sub-committee  of 
nine  men  who  were  to  devote  their  entire  time  to  the  task. 
The  "working  committee"  was  formally  organized  and  be- 
gan its  duties  on  September  15,  1908.  It  made  many  rec- 
ommendations which  were  adopted  by  the  three  classifica- 
tion committees,  with  the  result  that  a  much  greater  de- 
gree of  uniformity  in  classification  was  brought  about  than 
traffic  experts  had  deemed  possible.  It  was  due  chiefly 
to  the  efforts  of  this  committee  that  the  Consolidated  Clas- 
sification  was  published   in    1919. 

There  is  still  a  widespread  sentiment  in  favor  of  a  uni- 
form classification  for  the  entire  United  States.  Though  uni- 
formity of  classification  seems  in  theory  highly  desirable,  the 
three  main  classification  territories  represent  such  variations 
in  industrial  conditions  as  to  create  obstacles  which  make  the 
work  of  securing  uniformity  necessarily  slow  and  difficult. 
The  unification  of  present  classifications  would  require  a 
general  readjustment  of  rates  and  might  fundamentally 
alter   the   existing   conditions   of   competition   among   rival 


158  RAILROAD  TRANSPORTATION 

producing  and  manufacturing  centers  in  different  parts  of 
the  country.  It  will  probably  not  be  impossible,  however, 
to  rearrange  freight  charges  on  the  basis  of  a  uniform 
classification  so  as  to  minimize  the  interference  with  in- 
dustrial competition.  Necessarily,  some  articles  will  have 
to  be  withheld  from  the  classification  and  be  given  special 
or  commodity  rates,  though  there  are  serious  objections  to 
increasing  the  already  large  number  of  such  tariffs. 

The  rates  to  be  charged  between  given  points  upon  ship- 
ments of  "class  traffic,"  that  is,  freight  moved  subject  to 
the  rating  in  the  classification  book,  are  specified  in  another 
publication  called  the  "class  tariff"  or  rate  book.  Class 
tariffs  may  be  local  or  joint.  The  former  are  issued  by  an 
individual  railway  company  for  the  class  traffic  between 
local  points,  that  is,  between  stations  on  its  own  lines ;  the 
latter  are  issued  by  the  originating  carrier  and  concurred 
in  by  the  connecting  lines.  When  a  shipper  delivers  a 
consignment  of  class  freight  to  a  railway  company  for 
transportation  the  agent  first  consults  the  classification  book 
to  ascertain  in  which  class  the  traffic  falls,  then  turning  to 
the  rate  book  he  finds  given  in  "cents  per  ioo  pounds"  the 
rate  to  be  charged  from  his  station  to  the  point  of  destina- 
tion. In  case  the  shipment  is  consigned  beyond  the  bound- 
aries of  one  of  the  great  classification  territories,  it  is  nec- 
essary, if  no  joint  through  rate  is  in  effect,  that  the  agent 
find  the  amount  to  be  charged  for  that  part  of  the  trans- 
portation occurring  in  each  classification  district,  and  charge 
the  sum  of  the  several  rates,  or  what  is  known  as  a  "com- 
bination of  locals." 

In  quoting  rates  on  commodity  traffic,  the  freight  agent 
turns  directly  to  the  "commodity  tariffs."  Many  commodity 
tariffs  are  elaborate.  A  railway  may  have  arrangements  with 
numerous  companies  for  the  through  shipment  of  an  impor- 
tant commodity  and  the  tariff  sheets  must  show  the  rate  to 
hundreds  of  stations.  Other  "commodity  tariffs"  specify  the 


CLASSIFICATION  OF  FREIGHT  159 

rates  merely  to  a  few  commercial  centers,  and  state  the  sums 
to  be  added  in  order  to  determine  the  rates  to  other  regions. 
Freight  is  usually  spoken  of  as  through  and  local.  In 
a  popular  sense  through  freight  means  that  which  is  trans- 
ported a  long  distance,  and  local  freight  that  which  is 
moved  only  a  short  distance.  The  railroad  companies, 
however,  use  the  words  in  a  more  technical  sense.  By 
local  freight  they  mean  that  which  originates  and  termi- 
nates upon  the  same  line — that  is,  freight  carried  between 
two  points  on  the  same  road.  Through  freight  is  that 
which  comes  to  the  railroad  company  from  some  other 
railroad,  or  that  which,  originating  at  some  point  on  the 
line,  is  turned  over  to  some  connecting  carrier — that  is 
to  say,  through  freight  is  that  in  the  transportation  of 
which  more  than  one  carrying  company  is  employed.  In 
general,  the  technical  use  of  the  terms  corresponds  with 
their  popular  meaning,  but  not  always  so.  Some  freight 
may  travel  hundreds  of  miles,  pass  State  boundaries  and 
move  between  great  centers  of  population,  and  yet  not 
leave  the  original  line ;  while  through  freight  may  move 
only  a  short  distance.  The  distinction  between  through  and 
local  freight  is  an  important  one  for  the  railroads,  because 
they  are  obliged  to  employ  different  methods  of  accounting 
when  the  business  is  handled  jointly  with  another  corpora- 
tion than  when  it  is  confined  entirely  to  their  own  line. 


CHAPTER  XI 

THE  FREIGHT  SERVICE,    (Concluded)—  BUSINESS 

ORGANIZATION 

Freight  shipping  papers,  (i)  bills  of  lading,  (2)  the  waybill,  160. 
Unit  billing,  168.  Organization  of  freight  service,  168.  De- 
murrage, 170.  Reciprocal  demurrage,  171.  Fast  freight  lines, 
171.  Cooperative  freight  lines,  173.  Car  interchange  and  the 
per  diem  system,  175.  Records  of  car  movements,  175.  The 
railroad  clearing  house,  176.  Private  cars  and  private  car  lines, 
177.     References,  179. 

In  connection  with  the  handling  of  the  freight  traffic 
several  shipping  papers  are  necessary.  Some  of  these 
papers  constitute  the  contract  and  the  record  of  transac- 
tions between  the  railway  company  and  the  shippers  and 
others  are  used  to  enable  the  company  to  keep  an  account 
and  a  record  of  the  various  shipments. 

Upon  delivering  goods  to  the  railroad  company  at  one 
of  its  freight  stations  the  shipper  receives  from  the  repre- 
sentatives of  the  company  a  receipt  for  freight.  Large 
shippers  often  prefer  to  furnish  their  own  receipts  or  bills 
of  lading  for  the  freight  agent  to  check  up  and  sign.  Many 
railroads  have  wholly  dispensed  with  the  receipt,  the  bill  of 
lading  serving  therefor.  The  two  papers  are  identical,  ex- 
cept that  the  shipper's  receipt  is  not  negotiable  and  usually 
does  not  contain  the  rate  of  charge.  The  shipper's  receipt, 
wherever  issued,  may,  upon  request  of  the  shipper,  be  ex- 
changed for  a  bill  of  lading. 

The  bill  of  lading  is  a  contract  which  the  railroad  makes 
for  the  transportation  to  the  proper  consignee  of  the  articles 

160 


Railroad  Company 


STRAIGHT    BILL  OF    LADING— ORIGINAL— NOT  NEGOTIABLE 


Shipper's  No... 
Agent's  No. 


RECEIVED,  subject  to  the  eUaaifioationa  and  tariff*  io  effect  on  the  date  of  issue  of  Ibta  Original  Bill  of  Lading  l^e  properly  described 
below,  m  apparent  good  order,  except  as  uohfd  icouteut*  and  condition  of  conteot*  of  packages  unknown),  marked,  consigned  and  dwrttoM  as 
indicated  below,  wbiob  Mid  Compan*  tgrees  to  carry  to  Its  usual  place  of  delivery  at  B»ld  dWrtlnttloiJ,  if  on  its  road.  otherwise  Io  di-lrver  to 
another  oarrier  on  the  route  to  Mid  dtstinaliuu.  It  la  mutually  agreed,  as  to  each  earner  of  nil  or  any  of  said  properly  over  all  or  any  portion  of 
Mid  route  to  destination,  and  aeto  each  party  at  any  time  interested  in  all  or  any  of  hctid  property,  tbut  every  scrvioe  to  be  per  formed  hereunder 
aheJl  be  subject  to  all  the  condition*,  whether  printed  or  written,  herein  eontuiued  (iocludiug  coudiliong  ou  back  hereof)  and  which  are  agreed  U> 
by  the  shipper  auJ  aeeepted  tor  lumaeli  and  bis  assign*. 


Th0  SaU  of  TVstf/M  from^ 


.is  in  Cents  per  100  Lbs. 


IF  4th  Clau      If  6ii.  Claia      IF  BIS  Clin 


RECEIVED, 

subject  m  above  ateted,  at_ 


D.t«_ 


From.- 


Vi»_ 


m.ll  A  J<r*w  -  -So*  f."  parpuaaa  of  I'.llt.rr  ) 


_191 


CouaiKueti   to 

Deafiiiatinn 

Route . 


Slate   of  ,  

Cur  Initial    „ 


,  CouuLy    of 

'*<"•  No... 


PACKAGES 

DESCRIPTION  OF  ARTICLES  AND  SPECIAL  MARKS 

WEIGHT 
iSvbjKt  Io  Coir»clion> 

Rttsand 
Aglho'ity 

FREIGHT 

CHARGES 

ADVANCES 

PREPAID 



— 

— 

" 







THIS    FORM    TO    FjE   PRINTED 

ON    "WHITE"    PAPER. 





— 





...Shipper. 


-Aifwul 


Per. 


'Tola  bill  of  Ladloc  la  to  t*  (Ian*!  !•»  va*  tblppaf  ami  acaol  of  the  aamar  laaalof  asoaa  I 


STBAicnT  Bill  of  Lading 


161 


162  RAILROAD  TRANSPORTATION 

named  in  the  bill.  It  may  be  either  "straight"  or  "order." 
A  bill  of  lading  contains  a  statement  of  the  number  of 
packages  shipped,  description  of  the  articles,  their  weight, 
rate,  or  class  and  rate,  charges  due  and  advances  paid, 
name  of  shipper  and  consignee,  shipping  point,  destina- 
tion, route,  car  number  and  initials  and  signature  of  the 
freight  agent  and  the  shipper.  It  moreover  contains  an 
agreement  that  the  articles  are  accepted  and  shipped  sub- 
ject to  certain  stipulated  conditions.  The  contract  con- 
tained in  the  uniform  bill  of  lading  which  was  approved 
by  the  Interstate  Commerce  Commission  and  widely  adopted 
in  1908,  contains  nine  sections,  the  leading  provisions  being 
the  exemptions  of  the  carrier  from  liability  for  loss  or 
damage  due  to  "the  act  of  God,  the  public  enemy,  quarantine, 
the  authority  of  law,  or  the  act  or  default  of  the  shipper  or 
owner,  or  for  differences  in  weights  of  grain,  seed  or  other 
commodities  caused  by  natural  shrinkage  or  discrepancies 
in  elevator  weights,"  fire  occurring  48  hours  after  notice  of 
arrival,  strikes  and  riots,  and  delays  ordered  by  the  owner  of 
the  goods. 

Straight  bills  of  lading  are  issued  on  white  paper  in 
triplicate  form,  the  original  and  one  copy  being  given  to  the 
shipper,  and  the  other  copy  being  retained  by  the  freight 
agent.  The  shipper  sends  the  original  to  the  consignee 
and  keeps  his  copy  as  a  "memorandum"  for  his  office 
records;  the  copy  retained  by  the  freight  agent,  known  as 
the  "shipping  order,"  is  used  in  making  out  the  waybill 
for  the  shipment  and  is  then  filed  in  the  freight  station 
office. 

The  order  bill  of  lading  is  issued  whenever  the  shipper 
desires  to  secure  payment  for  his  goods  before  delivery 
is  made  to  the  consignee.  The  contract  conditions  and  the 
items  specified  are  identical  with  those  of  the  straight 
bill,  but  the  freight  is  consigned  to  the  order  of  the  shipper 
instead  of  to  the  consignee,  and  with  the  stipulation  that  the 


Railroad  Company 

Shippers  No. 
ORDER  BILL  OF  LADING ORIGINAL. 


Agents  No.__ ^ 


RECEIVED,  ■utijjtct  to  tb«  classifications  ajid  larilTa  in  effect  on  the  date  of  issue  of  tbia  Original  Bill  of  Lading  tbo  property  described 
i^lnw,  m  apparent  gofxi  order,  fiu.^i  m  noted  (content*  and  condition  of  contents  of  packages  unknown),  narked,  consigned  and  destined  aa 
indicated  below,  which  said  Company  ICWi  to  c:irpy  to  iU  usual  placo  of  dt-ijvory  .U  said  dest'uiatii-o,  if  oo  its  road,  otherwise  to  deliver  to 
another  warrior  on  thi  mute  to  ttiid  destination.  It  is  mutual  I  j  agreed,  as  to  encU  carrier  of  all  or  any  of  said  property  over  all  or  any  portion  of 
said  route  to  destination,  nnd  as  to  c.vb  p.irly  at  any  tinio  interested  in  all  or  any  of  tnid  property,  that  every  service  to  be  performed  bereuuder 
■liall  bo  subject  to  all  the  condltluu,  whether  printed  or  written,  heroin  contained  (including  conditions  on  back  hereof)  and  wbieb  an  agreed  to 
by  the  shipper  and  accepted  for  himself  and  his  assigns.  '    * 

Trie  MUUsHir  of  this  Original  ORDER  Bill  of  Lading  properly  Indorsed  shall  be  required  before  the  delivery  of  the 
property.  Inspection  of  property  covered  by  this  bill  of  lading  will  not  be  permitted  unless  provided  by  law  or  unlets  permission 
Is  indorsed  on  this  original  bill  of  lading  or  given  la  writing  by  the  shipper.  *  ' 


The  Jtate  of 

to __ 

i'rciglit  from _ 



, 

is  in  Cents  per  100  Lbs. 

IF  SmcIsI 

[     tw 

sF  ls**M 

*  .  .  tints  1st 

IF  HI  Clsis 

IT  IdCI.it   |   IF  Bull  76 

IF  34  cm* 

IF  Rul.JG 

IF  Ruts  >■ 

IF  4th  Class 

IFataClsis 

IF  6th  Cists 

P*. 

1 

From 

Shipper  _ 
Vis 


Dote. 

-to^ 


-191- 


IH.ll  AAAnm-X*  far  pmrjamm  <f  W^rt 


Consigned    to    ORDER    OF. 

Destination, ._ - 

Notify 

At 


.County   of. 


...State  of. 


...Countjr   ot. 


.Car  IniLi.il „ 


-Car  No.. 


MO. 
PACKAGES 

DESCRIPTION  OF  ARTICLES  AND  SPECIAL  MARKS 

WEIGHT 
iSubjecl  teComxtlon) 

Aiithorlly 

fREIGHT 
CHARGES 

ADVANCES. 

riEPAID 









— 



THIS   fORM  TO   BE    PRINTED 

ON    "YELLOW"    PAPER.. 



— 

" 







— 

— 





.Shipper.         .... „ 


.  Agent. 


Per_ 


(Tbl*  Uill  of  LadiM  l»  U>  b*  tifutd  br  ths  thlppsr  sod  stsai  or  tu»  esrrur  Miim  issss.) 


Okder  Bill  of  Lading 


163 


164  RAILROAD  TRANSPORTATION 

freight  is  not  to  be  delivered  to  the  consignee  except  on 
presentation  of  the  original  order  bill  of  lading  properly 
indorsed.  The  original  is  printed  on  yellow  paper  and  the 
copies  on  bine  in  order  to  avoid  the  possibility  of  fraud. 
The  original  order  bill  of  lading  is  a  negotiable  instrument, 
which,  when  attached  to  a  draft  on  the  purchaser  of  the 
goods,  may,  when  properly  indorsed,  be  discounted  at  the 
shipper's  bank.  The  bank  then  sends  the  bill  and  draft  to 
its  correspondent  bank  in  the  city  to  which  the  goods  are 
billed.  This  bank,  after  collecting  the  amount  of  the  draft 
from  the  purchaser,  gives  to  him  the  original  order  bill  of 
lading  indorsed  by  the  shipper,  and  this  enables  him  to  obtain 
his  goods  from  the  railway. 

In  addition  to  the  uniform  straight  and  order  bills  of 
lading;  there  are  various  other  forms  to  meet  particular 
needs.  A  uniform  export  bill  of  lading,  which  has  been 
widely  adopted,  is  an  elaborate  document,  the  contract  pro- 
visions of  which  stipulate  the  conditions  under  which  the 
traffic  received  is  to  be  carried  over  the  three  distinct 
parts  of  its  route,  that  is,  (i)  from  the  point  of  origin  to 
the  port  from  which  the  goods  are  to  be  exported,  (2)  from 
the  port  of  export  to  the  foreign  port  of  receipt,  and  (3) 
from  the  foreign  port  of  receipt  to  the  ultimate  destination 
in  the  foreign  country.  For  the  shipment  of  grain  a  special 
kind  of  bill  of  lading  is  often  used,  and  the  same  is  true 
for  the  shipment  of  live  stock. 

Formerly  it  was  customary  for  railroads,  when  receiving 
certain  kinds  of  traffic,  to  require  the  shipper  to  sign  a  re- 
lease, fixing  the  liability  of  the  railroad  for  loss  or  damage 
at  a  certain  maximum.  If  the  shipper  refused  to  sign  such 
a  release  he  was  obliged  to  pay  higher  rates.  By  the 
Cummins  amendment  to  the  Interstate  Commerce  law,  made 
August  9,  1916,  the  carriers  are  required  to  assume  full 
liability  for  the  actual  loss  or  damage  caused  by  them,  re- 
gardless of  any  agreement  or  regulation  limiting  their  liabil- 


ORGANIZATION  OF  FREIGHT  SERVICE  165 

ity.  The  railroad  companies  have  adopted  for  some  com- 
modities a  sliding  scale  of  rates  based  on  the  actual  de- 
clared value  of  the  shipments.  Such  rates  can  be  adopted 
only  with  the  express  consent  of  the  Interstate  Commerce 
Commission. 

"•VTtx  etna  ' 

(NOTATIONS  OF   TRANSFERS,   PASSING  STAMPS,   ETC.,   SHOULD  8E  PLACED  IN  BLANK  SPACE  BELOW.) 


PENNSYLVANIA 

RA 

LROAD   COMPANY 

Freight  Bill  No. 

W.  J.  4  S.  R.  R. 

WATB 

ll  OF  Merchandise  Forwarded 

Length  of  Car 

Feet 

Inches     Marked  Capacity  of  Car 

Lbs.    C.  L.  Minimum 

Lbe'i 

Weighed  Al 

Scales  /     Grose 
)     Tare 
191      )     Net 

Lbs. 
Lbs. 
Lbs. 

ROUTE  No.    COMMOOITT  «... 

t.  iw  rtj 

Point  of  Origin 

Connecting  Line  Reference 

Original  Car 

Weybllled 
From 

Waybill  No. 

Date 

191 

Shipper 

la. 

Via 

Consigned 
to 

Destination 

State  ol 

County  of 

Route 

Car  Initial  and  No. 

DESCRIPTION  OF  ARTICLES  AND  SPECIAL  MARKS 


WEIGHT 

SuMmI  leCorrtcHon)        Authority 


PRtPAIi*    ( 


Merchandise  Waybill 

The   railroad  keeps   account   of   all   shipments   made   by 
means  of  waybills.     For  every  shipment  of  freight  a  way- 


K 


..Car  No... 


To_ 


Via 


tatfing : __ _ 

Combwwi  Weight  cfC  r  and) 
Udtog  for  Engine  Rating    )  _ 


.....Net  Ton* 


Re-Ice  at. 


A.  D.  1167 

PENNSYLVANIA  RAILROAD 

ftuil,  Balls.  &  Wash.  ft.  B-  W.  J.  4  Seashore  R.  R. 

.  And  Rojds'in  Interline  System 


from 

Original  Paint  \ 

cf  Shipment  /.. 
CMglttl  1 

Initial   / 

Shipper 


Car  No...._ 


Consignee... 


Destinotioiu, 


'Via. 


Prepaid  $ 


... To  Collect  1. 


Marked  Cansftty  of  Car 

Iht. 

ESttllMUO  WEI6HT 

ACTUAL  WEIGHT 

lbs. 

Gro33 _..,«- 

lbs. 

WEIOHtD  AT 

~ — - 

T«t 

.._lb*. 

__ .....191 

Net 

lbs. 

Date. 


J91 


Agent 


Tran$ferr«ffto. 

At..... :...:.. 


..Car  No. „ ...... 

.....Date _....*...  J9J 


NOTE-This  card  must  be  used  only  for 
freight  charged  at  the  L.  C.  L.  rate. 


2.1 


Card  Waybill 
166 


ORGANIZATION  OF  FREIGHT  SERVICE      167 

bill  is  made  out  stating  the  number  and  initials  of  the  car 
in  which  the  goods  are  sent,  giving  the  names  of  the  con- 
signor and  consignee,  the  points  of  origin  and  destination 
of  shipment,  a  description  of  the  articles,  their  weight, 
tariff  or  class,  rate,  charges,  advances  and  amounts  prepaid 
and  the  signature  of  the  freight  agent.  A  copy  of  every 
waybill  made  out  is  sent  to  the  auditor  of  freight  receipts 
of  the  railroad  and  another  copy  is  kept  on  file  in  the 
office  of  the  forwarding  agent.  The  original  waybill  either 
accompanies  the  freight  or  is  forwarded  to  destination  by 
mail.  If  sent  by  mail  a  card  waybill,  containing  information 
similar  to  that  in  the  original  waybill,  is  made  out  and 
given  to  the  freight  train  conductor.  For  local  freight  a 
local  waybill  is  used ;  for  through  freight  an  interline  way- 
bill. 

Interline  waybills  differ  from  local  waybills  chiefly  in 
that  they  route  a  shipment  over  specified  lines  of  the 
company  receiving  the  freight  to  some  point  on  another 
(a  "foreign")  railway.  A  copy  of  the  interline  waybill  is 
sent  to  each  of  the  railways  concerned  in  the  shipment,  as 
well  as  to  the  auditor  of  freight  receipts.  A  great  deal  of 
the  through  freight  carried  is  not  sent  on  interline  waybills, 
but  is  rebilled  at  each  junction  point.  Special  types  of  way- 
bills are  used  by  many  railroads  for  particular  kinds  of 
freight,  such  as  live  stock,  perishable  commodities,  coal, 
and  company  freight. 

Upon  the  arrival  of  a  shipment  at  its  destination  the 
receiving  agent  makes  out  a  notice  of  arrival,  a  delivery 
receipt  and  a  freight  bill.  These  forms  each  contain  the 
record  of  the  waybill,  describe  the  goods  which  have  been 
shipped,  and  state  the  amount  of  freight  charges.  The 
notice  of  arrival  is  sent  to  the  consignee,  who  calls  at  the 
freight  house  and  secures  his  goods,  signing  the  delivery 
receipt,  which  the  freight  agent  retains  for  his  office  records. 
The  freight  bill,  upon  payment  of  the  charges  indicated, 


168  RAILROAD  TRANSPORTATION 

is  signed  by  the  agent  and  given  to  the  consignee  as  a 
receipt. 

Some  railroads  have  adopted  an  ingenious  scheme  of 
"unit  billing,"  by  which  all  the  shipping  papers  used  with 
each  shipment  of  freight  can  be  made  out  by  the  forwarding 
agent  at  one  operation.  A  copy  of  the  waybill  is  kept  by  the 
forwarding  agent,  the  bill  of  lading  is  given  to  the  shipper, 
and  the  other  papers — original  waybill,  freight  bill,  arrival 
notice  and  delivery  receipt — are  sent  to  the  agent  receiving 
the  shipment.  This  method  saves  a  great  deal  of  time  and 
eliminates  the  risk  of  error  due  to  transcribing.  In  cases 
where  the  shipper  so  desires  he  is  permitted  to  prepare 
the  waybill  at  the  same  time  he  prepares  the  bill  of  lading 
and  the  shipping  order,  the  freight  agent  filling  in  such  in- 
formation as  is  not  in  the  shipper's  possession.  The  Penn- 
sylvania Railroad  Company,  which  uses  the  unit  billing 
system,  has  its  waybills  in  four  colors,  white  for  a  straight 
consignment,  charges  collect;  pink  for  a  straight  consign- 
ment, charges  prepaid;  yellow  for  an  order  consignment, 
charges  collect ;  and  green  for  an  order  consignment,  charges 
prepaid. 

To  insure  rapidity  and  regularity  in  the  handling  of 
freight  traffic  a  railroad  company  finds  a  thoroughly  sys- 
tematic organization  of  the  service  necessary.  Each  day  a 
large  railroad  receives  at  its  freight  houses,  and  team  tracks, 
and  from  industrial  sidings  thousands  of  shipments  con- 
signed to  individuals  and  firms  at  many  different  places. 
The  movement  of  each  article  must  be  accounted  for  from 
the  time  it  is  received  from  the  shipper  until  it  is  delivered 
to  the  consignee.  How  the  service  is  organized  to  do  this 
may  be  shown  by  a  brief  description  of  the  way  a  shipment 
is  handled  from  an  outbound  freight  house  in  one  large 
terminal  to  an  inbound  freight  house  in  another.1 

*For  a  detailed  description  of  the  handling  of  freight  traffic  cf. 
Johnson  and  Huebner,  Railroad  Traffic  and  Rates,  I. 


ORGANIZATION  OF  FREIGHT  SERVICE      169 

When  traffic  is  delivered  to  the  railroad  company  by 
the  shipper  at  the  outbound  freight  house  it  is  weighed 
and  the  weights  entered  on  the  shipping  order;  the  packages 
are  marked  to  indicate  in  which  car  they  are  to  be  placed, 
and  are  then  turned  over  to  truckers  to  be  loaded.  The 
shipping  order  is  stamped  with  the  number  of  the  car  in 
which  the  goods  are  placed  and  is  sent  to  the  office,  where 
it  is  taken  first  to  a  rate  clerk,  who  enters  the  rate  and  the 
amount  of  freight  charges.  The  shipping  papers  for  all 
the  traffic  loaded  into  a  single  car  are  placed  together 
and  given  to  a  billing  clerk,  who  makes  out  the  waybills 
for  the  car,  all  packages  having  the  same  destination  being 
entered  on  the  same  waybill.  Ordinarily  it  is  possible  at 
each  outbound  freight  house  to  load  a  large  number  of  cars 
with  articles  for  a  single  destination,  and  for  each  of  these 
cars  a  single  waybill  is  sufficient. 

At  regular  intervals  during  the  day  the  loaded  cars  are 
removed  from  the  outbound  freight  house  and  replaced 
by  empty  cars.  A  switch  engine  hauls  the  loaded  cars  to 
the  freight  yard,  where,  with  cars  coming  from  other 
freight  houses,  and  from  other  points  on  the  railway,  they 
are  classified  according  to  destination,  and  made  into  trains. 
The  conductor  is  given  either  the  original  waybills  or  card 
waybills  for  his  train,  and  from  them  he  knows  what  is  to 
be  done  with  each  shipment  of  traffic  which  the  train 
contains. 

When  a  car  arrives  at  the  freight  yard  at  the  point  of 
destination,  it  is  switched  to  an  inbound  freight  house,  un- 
loaded, and  the  contents  checked  against  the  waybill.  A 
notice  of  arrival  is  sent  to  the  consignee,  who  pays  what- 
ever freight  charges  may  be  due  the  railroad  company  and 
receives  the  goods. 

Most  of  the  leading  railroads  have,  within  recent  years, 
adopted  methods  for  moving  certain  kinds  of  freight  more 
rapidly  than  others.      Such    freight   is   usually   known   as 


170  RAILROAD  TRANSPORTATION 

"time  freight"  but  sometimes  as  "preference"  or  "fast" 
freight,  to  distinguish  it  from  the  other  class  known  vari- 
ously as  "slow,"  "ordinary,"  or  "dead"  freight.  Time 
freight  is  usually  carried  on  special  trains  at  the  rate  of 
about  20  miles  per  hour  as  contrasted  with  a  speed  of  12 
miles  per  hour  for  slow  freight.  The  trains  have  a  regular 
schedule  and  special  arrangements  are  made  to  facilitate 
their  movement.  On  the  road  they  are  given  the  right  of 
way  over  other  freight  trains,  and  in  the  yards  the  cars 
of  fast  freight  are  given  preference  so  that  the  time  oc- 
cupied in  moving  them  through  terminals  is  much  less  than 
that  required  for  the  movement  of  cars  loaded  with  or- 
dinary freight.  Some  railroads  have  adopted  special  billing 
for  their  fast  freight  shipments. 

A  very  large  part  of  the  freight  received  by  a  railroad 
company  is  not  brought  to  its  freight  houses,  but  is  loaded 
by  the  shippers  directly  into  cars  placed  on  team  tracks  or 
industrial  sidings.  In  a  similar  way  many  consignees  have 
freight  delivered  in  carload  quantities  directly  to  their  busi- 
ness establishments.  When  a  shipper  desires  to  send  car- 
load consignments  he  requests  empty  cars  from  the  freight 
agent  who  transmits  the  request  to  the  car  distributor. 
After  a  car  has  been  delivered  to  a  shipper  or  after  a  car- 
load of  freight  has  been  delivered  to  a  consignee  it  is  cus- 
tomary for  the  railroad  company  to  allow  a  certain  length 
of  time — generally  48  hours — in  which  to  load  or  unload 
the  car.  After  the  expiration  of  the  "free  time"  the  railroad 
imposes  a  cash  penalty  known  as  demurrage.  By  this 
means  the  company  is  able  to  keep  its  freight  car  equip- 
ment in  more  nearly  continuous  service.  Some  railways 
collect  at  certain  terminals  not  only  demurrage  but  also 
track  storage  cJiargcs.  These  charges  are  designed  to 
discourage  the  practice  which  some  consignees  indulge 
in  of  using  freight  cars  as  warehouses.  Dealers  in  fruits 
and    perishable    produce    can    often    easily    afford    to    pay 


ORGANIZATION  OF  FREIGHT  SERVICE  171 

demurrage  to  use  cars  as  warehouses,  but  in  so  doing  they 
cause  loss  and  inconvenience  both  to  the  railroads  and  to 
shippers.  It  is  to  overcome  this  abuse  that  track  storage 
charges  are  imposed  at  certain  places. 

In  several  States  demurrage  is  regulated  by  statute.  The 
law  or  the  railroad  commission  of  the  State  may  fix  the 
length  of  free  time  the  carriers  must  allow  and  stipulate 
the  amount  of  penalty  that  may  be  imposed.  Some  States 
have  also  enacted  statutes  known  as  "reciprocal  demurrage 
laws"  which  impose  a  penalty  on  the  railroad  companies  for 
failure  to  furnish  shippers  with  cars  within  a  certain  time, 
or  for  failure  to  move  freight  traffic  at  a  stipulated  minimum 
rate  of  speed.  The  Interstate  Commerce  Commission  has 
jurisdiction  over  demurrage  on  interstate  shipments  and  it 
has  aided  the  railways  in  formulating  and  adopting  a  uni- 
form code  of  demurrage  rules.  No  reciprocal  demurrage 
law  affecting  interstate  shipments  has  been  enacted. 

At  the  beginning  of  the  railway  business  each  company 
endeavored  to  keep  its  own  cars  upon  its  own  lines,  and 
it  was  necessary  for  shipments  going  over  the  lines  of  two 
or  more  carriers  to  be  transferred  from  one  car  to  another 
at  the  end  of  each  separate  line.  A  shipper  sending  a  con- 
signment of  goods  which  was  to  be  conveyed  by  several 
railroads  usually  employed  an  agent  at  the  terminus  of  each 
road  to  take  charge  of  his  property  and  forward  it  to  the 
next  point  of  reshipment,  until  it  reached  its  final  destina- 
tion. The  inconvenience  and  expense  of  this  method  of 
transportation  led  to  the  formation  of  the  so-called  fast 
freight  lines,  which  were  companies  organized  especially 
to  care  for  joint  or  interline  business.  These  freight  lines 
provided  their  own  cars  and  made  arrangements  with  dif- 
ferent railroads  for  hauling  them,  thus  obtaining  continuous 
service  between  distant  points. 

A  typical  corporation  of  this  kind  was  the  Empire  Trans- 
portation Company,  chartered  by  the  State  of  Pennsylvania 


172  RAILROAD  TRANSPORTATION 

in   1865.     This  company,  which  is  still  in  existence,  was 
created  to  increase  the  business  done  over  the  Philadelphia 
and  Erie  Railway,  a  line  connecting  Sunbury  and  Erie,  Pa., 
and  forming  one  of  the  roads  joining  New  York  and  Phila- 
delphia with  the  oil  regions  in  western  Pennsylvania  and 
the  Great  Lakes.     As  stated  by  the  company,  its  purpose 
was  "to  increase  convenience,  promptness,  and  safety  in  the 
transfer  of  property  between  inland  points  west  on  the  line 
of  the   Philadelphia  and   Erie  Railway  and  points   on  the 
Atlantic  slope  and  seaboard  and  in  the  foreign  countries 
east  thereof,  and  to  do  so  in  such  a  manner  as  should  popu- 
larize with  the  shipping  public  the   route   formed  by  that 
railway  and  its  various  connections."     Like  other  corpora- 
tions   of    its    kind,    the    Empire    Transportation    Company 
solicited  freight,  provided  patrons  with  cars,  charged  such 
rates    for   its    services   as    competitive    conditions   allowed, 
paid  the  railroad  for  hauling  its  cars,  and  retained  the  re- 
mainder   of    its    income    above    expenses    for    distribution 
among  its  stockholders.     To  increase  its  business,  the  Em- 
pire  Transportation   Company   built   pipe-lines    within   the 
oil  regions,  developed  terminal  facilities  on  the  seaboard  and 
Great  Lakes,  and  established  transportation  companies  on 
the   Great    Lakes   and   railroad    lines    extending   westward 
from  Pittsburgh  and   Ohio  to   Chicago,   Indianapolis,   and 
other  points  in  the  central  West. 

A  traffic  organization,  such  as  the  Empire  Transportation 
Company  developed,  was  in  many  ways  similar  to  the  com- 
panies that  were  organized  for  freight  and  passenger  busi- 
ness over  the  turnpikes  and  toll  roads  in  the  days  before 
railroad  construction  began.  The  companies  owning  the 
roadbed  were  distinct  from  those  performing  the  service  of 
transportation  over  the  road.  Such  a  form  of  organization 
had  certain  advantages,  particularly  for  securing  traffic 
free  to  move  over  different  and  competing  lines.  It  was  an 
efficient  solicitor  for  business.     By  owning  the  cars  it  re- 


ORGANIZATION  OF  FREIGHT  SERVICE      173 

lieved  the  railroad  companies  of  the  necessity  for  provid- 
ing special  lines  of  business  with  particular  classes  of  rolling 
stock  at  a  time  when  the  railroad  companies  were  com- 
paratively small  organizations.  With  the  progress  of  the 
consolidation  of  railroads,  however,  the  fast  freight  lines 
of  the  class  typified  by  the  Empire  Transportation  Com- 
pany  ceased  to  be  necessary,  either  to  the  railroads  or  to 
the  public.  The  railroad  systems  reached  such  proportions 
and  their  interline  relations  so  developed  that  the  railroad 
companies  were  able  without  the  assistance  of  any  inter- 
vening corporation  to  take  shipments  between  most  distant 
places.  Moreover,  independent  fast  freight  lines  gave  cer- 
tain individuals  an  opportunity  to  divert  to  themselves  a 
part  of  the  profits  which  rightfully  belonged  to  the  stock- 
holders of  the  railroad.  Some  of  the  independent  fast 
freight  lines  were  controlled  by  a  limited  number  of  the 
stockholders  of  the  railroad  corporations  over  whose  roads 
the  fast  freight  lines  did  business,  and  an  unduly  large 
part  of  the  receipts  for  the  transportation  business  went 
to  the  fast  freight  lines.  The  railroad  company  received 
less  than  its  proper  share  of  the  total  earnings  derived 
from  the  business  done  over  its  lines. 

To  obviate  this  objection,  and  also  to  provide  more  effi- 
ciently for  the  management  of  interline  business,  the  "co- 
operative" freight  lines  were  established.  These  cooperative 
freight  lines  represented  merely  a  joint  arrangement  be- 
tween several  connecting  railroads.  Each  of  the  railroad 
companies  forming  the  cooperative  line  assigned  to  the 
line  a  number  of  cars,  usually  in  proportion  to  the  number 
of  miles  of  road.  A  general  manager  was  put  in  charge 
of  the  cooperative  line,  with  agents  at  the  principal  terminals 
to  solicit  business  and  employees  to  report  the  movement 
of  the  line  cars.  The  earnings  of  the  cooperative  line  and 
all  its  expenses  were  divided  pro  rata  among  the  interested 
roads.     Thus  the  cooperative  freight  line  was  little  more 


174  RAILROAD  TRANSPORTATION 

than  a  system  for  securing  an  inexpensive  and  honest  ad- 
ministration of  interline  business. 

With  the  growth  of  railway  systems  and  the  perfection 
of  their  methods  of  caring  for  traffic  even  the  cooperative 
freight  lines  lost  most  of  their  usefulness  though  they  have 
continued  to  be  used  by  the  railway  companies,  chiefly  as 
freight  solicitors,  trade  marks  and  accounting  bureaus.    The 
shipping  public  has  become  accustomed  to  consigning  goods 
to  certain  fast  freight  lines,  and  many  railroad  companies 
find  that  by  their  use  it  is  easier  to  control   competitive 
business.    The  railroads  also  find  these  cooperative  lines  of 
assistance  to  them  in  the  settlement  of  accounts   in  con- 
nection with  their  interline  business.     The  Union  Line  of 
the  Pennsylvania  Railroad  Company  was  for  many  years  a 
clearing  house  for  certain  accounts  of  the  railroad.    Previ- 
ous to  the  general  reorganization   of  the   Pennsylvania  in 
1920  the  lines  east  of  Pittsburgh  were  considered  as  a  sys- 
tem distinct  from  the  system  comprised  by  the  lines  east  of 
Pittsburgh,  and  the  traffic  passing  between  the  two  systems 
was  treated  as  through  traffic.   The  accounts  of  this  through 
business  were  audited  by  the  auditing  organization  of  the 
Union  Line.    This  Union  Line  was  organized  in  1863  as  an 
independent  fast  freight  line  between  eastern  and  western 
points  over  the  lines  of  the  Pennsylvania  Railroad  system ; 
but  in   1873  the  Pennsylvania  Railroad   Company,   having 
secured  control  of  all  the  roads  over  which  the  Union  Line 
operated,  caused  the  Pennsylvania  Company,  through  which 
the  Pennsylvania  Railroad  Company  controls  the  lines  west 
of  Pittsburgh,  to  purchase  the  Union  Line.   The  Union  Line 
still  exists,  but  its  chief  usefulness  to  the  Pennsylvania  Sys- 
tem comes  from  its  value  as  an  advertising  and  soliciting 
agency.     Its  symbol,  a  white  star,  is  seen  on  many  freight 
cars. 

A  leading  reason  for  the  decline  in  importance  of  the  fast 
freight  line  was  the  development  of  a  system  of  car  inter- 


ORGANIZATION  OF  FREIGHT  SERVICE      175 

change  among  the  railroad  companies.  Though  it  has  long 
been  the  practice  of  railways  to  permit  carload  freight  to 
be  shipped  through  from  consignor  to  consignee  without 
transhipment,  yet  most  through  traffic  before  1890  was 
handled  by  the  fast  freight  lines.  Railroad  companies  were 
reluctant  to  permit  their  cars  to  leave  their  own  lines  be- 
cause it  was  difficult  to  get  them  back  and  because  there 
was  no  satisfactory  method  of  securing  compensation  for 
the  use  of  the  cars  by  other  railroads.  The  rental  for  a 
long  time  consisted  entirely  of  "car  mileage,"  amounting  for 
several  years  to  three-fourths  of  a  cent  per  mile  run  by 
the  car;  later  the  payment  was  six-tenths  of  a  cent  per  car 
per  mile.  This  form  of  payment  was  unsatisfactory  because 
a  company  might  retain  a  foreign  car  for  a  long  time  with- 
out moving  it  more  than  a  short  distance.  Shippers  and 
consignees  were  often  permitted  to  use  foreign  cars  for 
storage  purposes,  and  inasmuch  as  there  was  no  check: 
upon  the  accounts  of  the  various  railways  it  was  possible 
for  a  company  to  use  foreign  cars  for  local  freight  service 
without  the  payment  of  mileage.  Because  of  the  defects  of 
the  mileage  system  of  compensation  the  leading  railroads 
in  1902  adopted  the  per  diem  system  of  payment  for  the 
use  of  foreign  cars,  it  being  agreed  that  the  owner  of  a 
foreign  car  should  receive  20  cents  a  day  for  its  use. 
The  rate  has  been  changed  at  various  times ;  it  has  at 
times  been  more  than  $1  a  day.  Though  the  per  diem 
method  has  not  always  been  sufficient  to  induce  railroads 
promptly  to  return  foreign  cars  during  times  of  car  short- 
age it  has  nevertheless  brought  about  a  great  improvement 
of  the  conditions  prevailing  under  the  old  system.  Not  only 
does  it  cause  railroad  companies  to  return  foreign  cars  more 
promptly  but  it  gives  the  companies  a  strong  reason  for 
collecting  demurrage  charges,  thus  bringing  pressure  to  bear 
upon  shippers  and  consignees  to  avoid  delaying  the  release 
of  freight  car  equipment. 


176  RAILROAD  TRANSPORTATION 

Every  railroad  company  keeps  a  record  of  the  daily  move- 
ment and  whereabouts  of  all  the  cars  on  its  lines.  By  means 
of  this  record,  the  amounts  due  foreign  lines  for  the  use 
of  their  cars  may  be  computed,  and  it  is  possible  to  learn 
the  location  of  any  car  on  the  system  at  any  time,  so  that 
lost  cars  and  lost  shipments  of  freight  may  readily  be 
traced.  The  record  is  kept,  either  in  the  form  of  a  card 
index  or  of  a  loose  leaf  ledger,  by  the  car  accountant,  who 
secures  the  necessary  information  from  the  reports  of  freight 
train  conductors  and  the  reports  of  the  agents  at  junction 
points  where  cars  are  interchanged  with  other  lines.  After 
each  trip  a  freight  train  conductor  is  required  to  make  a 
report  showing  the  point  "where  from"  and  the  point  "where 
to"  each  car  of  his  train  has  been  carried.  Each  time  a 
car  is  moved  its  new  location  is  recorded  together  with  the 
date.  From  the  agents  at  a  junction  point  the  car  account- 
ant receives  daily  car  interchange  reports  showing  what  cars 
have  been  received  from,  and  what  cars  have  been  delivered 
to,  other  lines.  This  information  the  car  accountant  places 
in  his  record,  and  as  soon  as  possible  sends  junction  re- 
ports to  the  companies  owning  the  interchanged  cars,  in- 
dicating what  cars  were  transferred  and  to  what  lines  they 
were  delivered.  Soon  after  the  close  of  each  month  a  per 
diem  report  is  made  out  to  the  owners  of  foreign  cars,  show- 
ing the  number  of  days  each  car  has  been  used  and  the 
amounts  due. 

The  per  diem  accounts  between  railway  companies  in 
the  United  States,  as  well  as  the  interline  freight  accounts, 
interline  passenger  accounts  and  loss  and  damage  accounts, 
are  virtually  all  settled  by  draft.  In  England  the  railway 
companies  are  all  members  of  a  clearing  house  which  was 
organized  in  1847  ar>d  chartered  by  Parliament  in  1850. 
The  British  Railway  Clearing  House  collects  all  the  charges 
and  distributes  the  earnings  on  interline  business,  the  rail- 
road companies  auditing  only  their  local  business. 


ORGANIZATION  OF  FREIGHT  SERVICE      177 

A  clearing  house  for  the  settlement  of  the  interline  ac- 
counts would  be  a  very  desirable  addition  to  the  business 
organization  of  American  railways,  though  the  work  of 
such  an  institution  in  a  country  where  the  distances  are  so 
great  as  in  the  United  States  would  be  much  more  com- 
plicated than  in  a  small  country  like  England.  In  1907  the 
Committee  on  Car  Efficiency  of  the  American  Railway  Asso- 
ciation organized  a  clearing  house  which  kept  a  record  of 
car  interchanges  and  settled  car-hire  accounts  for  a  number 
of  railroads,  the  most  important  of  which  were  the  Harri- 
man  lines.  This  clearing  house,  which  was  limited  in  scope 
both  as  to  the  kind  of  accounts  it  handled  and  as  to  the 
number  of  railroads  it  served,  was  abandoned  in  July,  1912, 
and  since  then  no  other  general  clearing  house  has  been  or- 
ganized. It  is  not  unlikely  that  a  clearing  house  system, 
either  a  single  great  clearing  house  or  a  number  of  dis- 
trict clearing  houses,  will  eventually  be  adopted  by  Amer- 
ican railways.  Inasmuch  as  the  railways  are  to  a  certain 
extent  divided  territorially  and  according  to  ownership 
into  a  small  number  of  groups  it  might  be  advantageous 
to  establish  a  clearing  house  in  each  one  of  the  territorial 
sections.1  Should  a  law  be  passed  requiring  the  rail- 
roads to  be  consolidated  into  a  limited  number  of  great 
systems,  a  single  clearing  house  could  effectively  handle 
all  interline  financial  transactions. 

The  railroad  companies  do  not  furnish  all  the  cars  used 
by  shippers.  Many  large  shippers  prefer  to  have  their  own 
cars  in  order  that  they  may  be  able  to  ship  their  goods  when- 
ever they  desire  to  do  so  and  in  cars  especially  adapted 
to  the  needs  of  their  business.  The  large  meat  packers  in 
Chicago,  Omaha  and  other  centers  of  the  packing-house 
business  own  their  own  cars,  and  this  is  also  true  to  some 
extent  of  western  fruit  growers,  the  shippers  of  petroleum, 

'For  an  account  of  a  proposed  railroad  clearing  house  system 
for  the  United  States,  cf.  W.  E.  Hooper,  Railroad  Accounting,  407. 


178  RAILROAD  TRANSPORTATION 

live  stock,  and  coal,  and  the  manufacturers  of  certain  kinds 
of  heavy  machinery.  On  the  basis  of  ownership  and  man- 
agement private  cars  may  be  divided  into  two  classes :  ship- 
pers' cars,  consisting  of  those  owned  by  the  shipper  and 
ordinarily  used  only  for  the  carriage  of  the  owner's  prop- 
erty, and  private  car  lines,  consisting  of  cars  owned  by  pri- 
vate companies,  who  lease  them  to  carriers  and  shippers 
for  general  use.  To  the  former  class  belong  most  of  the 
coal,  ore,  oil  and  fresh-meat  cars,  and  to  the  latter  belong 
fruit,  dairy,  poultry  and  live  stock  cars. 

The  private  car  owner  shipping  freight  in  his  own  car 
pays  the  same  freight  rate  as  other  shippers  and  the  same 
rate  as  he  would  pay  if  he  shipped  his  goods  in  a  car  be- 
longing to  a  railway.  For  the  use  of  the  car  the  railroad 
company  usually  pays  the  owner  a  fixed  amount  per  mile. 
Though  in  1902  a  mileage  rate  was  superseded  by  a  per  diem 
rate  as  the  method  of  payment  for  the  use  of  foreign  rail- 
way cars,  it  was  retained  in  the  case  of  private  cars.  In 
times  past  private  car  mileage  has  been  as  much  as  a  cent 
a  mile.  It  is  now  six  mills  for  stock  and  ordinary  cars,  while 
the  rate  on  refrigerator  cars  is  generally  one  cent  a  mile  in 
the  middle  West  and  three-fourths  of  a  cent  a  mile  in  the 
East  and  far  West. 

There  are  certain  objections  to  the  system  of  private  cars. 
They  have  led  frequently  to  unjustifiable  discriminations 
between  large  and  small  shippers,  the  man  possessing  his 
own  cars  and  shipping  in  large  quantities  being  able  to  ob- 
tain special  favors  from  the  railroad  companies.  Another 
fruitful  source  of  dissatisfaction  has  been  the  exorbitant 
charges  for  refrigeration  made  by  the  owners  of  private 
cars,  but  since  1906,  when  the  Interstate  Commerce  Com- 
mission was  authorized  to  regulate  such  charges  just  as  it 
regulates  freight  rates,  this  abuse  has  been  eliminated.  Pri- 
vate cars  have  unquestionably  been  of  great  benefit.  Several 
of  the   great   industries   of  the  country,   particularly    fruit 


ORGANIZATION  OF  FREIGHT  SERVICE      179 

raising  and  meat  packing,  have  reached  their  present  high 
state  of  development  only  because  special  transportation 
equipment  has  been  available.  In  the  early  days  of  these 
industries  the  railroads  were  unable  or  unwilling  to  supply 
the  necessary  equipment,  and  had  not  the  private  car  lines 
been  originated  the  growth  of  these  industries  would 
have  been  much  slower.  The  tendency  on  the  part  of  rail- 
roads at  the  present  time  is  to  limit  the  use  of  private  cars 
as  much  as  possible  by  supplying  themselves  all  the  equip- 
ment used  by  different  classes  of  shippers,  and  the  use  of 
private  cars  may  eventually  be  limited  to  a  small  number  of 
industries.  However,  the  number  of  private  cars  in  use  is 
large.  Their  exact  number  is  not  known,  but  there  are 
about  150,000,  or  about  6  per  cent  of  the  total  number  of 
cars  owned  by  the  railroad  corporetions. 

REFERENCES 

The  American  Railway  (1889).     Paner  on  "Railway  Manage- 
ment," by  E.  P.  Alexander,   149-186;  also  paper  on  "The 
Freight  Car  Service,"  by  Theodore  Voorhees,  267-297. 
For  the  classification  of  freight  the  following  references  may 
be  consulted: 
Report  of  Industrial  Commission,  IX,  pp.  lxxxii-xc  and  652- 

687  (1901). 
Fourth  Annual  Report  of  the  Interstate  Commerce  Commis- 
sion, 197-239   (1890). 
A  copy  of  a  freight  classification,  which  may  be  secured  from 

any  railroad  company. 
Interstate   Commerce  Commission  Reports,  XXV,  442    (In- 
vestigation in  the  Matter  of  the   Suspension  of  Western 
Classification  No.  51). 
For  a  discussion  of  fast  freight  lines  consult : 
Hadley,  A.  T.     Railroad  Transportation,  87-90   (1885). 
Report    of   Industrial    Commission,    IX,    pp.    xcv,    613,    724 

(1901). 
Johnson  and  Huebner.    Railroad  Traffic  and  Rates,  I,  chap, 
xiii   (1911). 


180  RAILROAD  TRANSPORTATION 

For  information  concerning  the  railway  clearing  house: 

Findlay,  G.  The  Working  and  Management  of  an  English 
Railway  (London,  1889).  [Contains  an  account  of  the 
British  Railway  Clearing  House.] 

Report    of   Industrial    Commission,    IX,    pp.    xcvii,    718-731 
(1901).     [This  is  the  testimony  submitted  to  the  commis- 
sion by  Mr.  William  Nicholson,  manager  Central  Railway 
Clearing  House,  Buffalo,  N.  Y.] 
The  subject  of  private  cars  is  discussed  in: 

Weld,  L.  H.  D.  "Private  Freight  Cars  and  American  Rail- 
ways," in  Columbia  University  Studies  in  Political  Science, 
XXXI,  No.  1,  1908. 

Midgeley,  J.  W.  "Private  Cars:  An  Inquiry  into  Their 
Growth,  Development,  and  Operations."  [A  series  of  pa- 
pers printed  in  the  Railway  Age,  October  10  and  17,  No- 
vember 7   and  21,    December   19,    1902,  and  January    16 

1903-] 
Johnson  and  Huebner.    Railroad  Traffic  and  Rates,  I,  chap. 

xii  (1911). 

Eighteenth  Annual  Report  of  Interstate  Commerce  Commis- 
sion (1904). 
On  the  per  diem  plan  of  payment  for  the  use  of  cars  consult : 

The  Railroad  Gazette,  February  17,  1899,  October  11,  1901, 
and  the  indexes  of  that  publication  for  the  years  1901  and 
1902. 

Weld,  L.  H.  D.     Ibid. 

Johnson  and  Huebner.  Railroad  Traffic  and  Rates,  I,  chap, 
x  (1911). 


CHAPTER    XII 
THE   PASSENGER   SERVICE 

General  characteristics  of  the  passenger  service,  i8r.  Comparison 
of  the  trend  of  passenger  fares  and  freight  rates  in  the  United 
States,  182.  Volume  of  passenger  traffic  in  the  United  States, 
185.  Comparison  of  railroad  travel  in  the  United  States  and 
foreign  countries,  186.  Classification  of  passenger  travel  in 
Europe,  187.  Varieties  of  passenger  service  in  the  United 
States,  188.  Relation  between  the  Pullman  Company  and  the 
railroad  corporation,  193.  Passenger  tickets  and  baggage 
checks,  195.  Methods  employed  to  increase  traffic,  196.  Op- 
portunities for  developing  passenger  traffic,  197.  Electricity 
and  the  passenger  service,  199.  Competition  of  the  automobile, 
200.     References,  200. 

The  service  of  transporting  persons  differs  in  several  par 
ticulars  from  the  freight  service.  Goods  are  shipped;  men 
travel  of  their  own  volition,  controlling,  in  most  instances, 
the  time  and  direction  of  their  movements.  This  fundamen- 
tal distinction  necessitates  an  organization  of  the  freight 
service  different  from  that  required  by  the  passenger  busi- 
ness. Freight  rates  and  passenger  fares  are  charges  levied 
for  dissimilar  services,  and  to  a  large  extent  are  deter- 
mined by  different  considerations. 

One  important  difference  between  the  two  branches  of 
the  service  is  that  most  freight  is  moved  in  carloads  or 
trainloads,  the  car  or  train  being  started  when  the  car  is 
loaded  or  the  train  is  made  up,  while  the  passenger  business 
is  performed  by  trains  that  run  on  fixed  schedules.  This 
distinction,  however,  does  not  apply  in  all  cases.  Some  com- 
modities, like  milk  and  fresh  fruit,  are  dispatched  by  trains 

181 


182  RAILROAD  TRANSPORTATION 

which  run  strictly  according  to  schedule,  and  the  collection 
and  distribution  of  the  traffic  at  the  local  centers  of  pro- 
duction or  consumption  are  usually  accomplished  by  "way- 
freight"  trains  which  have  a  more  or  less  definite  time  of  ar- 
rival and  departure.  Frequently  the  "milk"  trains  and  way- 
freight  trains  have  passenger  coaches  attached,  and  thus 
perform  a  mixed  service;  but  the  larger  share  of  the  freight 
traffic  is  handled  in  trains  whose  time  of  departure  is  ar- 
ranged with  reference  to  the  volume  of  goods  offered  for 
shipment,  while  passenger  trains  are  dispatched  according 
to  prearranged  schedules,  whether  many,  few,  or  no  per- 
sons present  themselves  at  the  station. 

The  passenger  service,  moreover,  to  a  far  greater  degree 
than  is  required  in  the  freight  business,  must  provide  for 
speed,  safety,  comfort,  and  convenience.  While  speed  and 
regularity  of  service  are  demanded  by  the  shippers  of  some 
classes  of  commodities,  the  great  demand  is  for  cheap  trans- 
portation, for  low  rates,  and  to  meet  this  demand  the  rail- 
road companies  have  constantly  striven  to  reduce  the  costs 
of  handling  and  moving  goods.  On  the  contrary,  in  the  pas- 
senger service  railroad  officials  have  striven  to  give  a  better 
service,  to  increase  speed,  provide  for  greater  safety,  and 
to  minimize  the  discomforts  of  travel.  Travelers  in  most 
countries,  and  particularly  in  the  United  States,  seem  to 
prefer  a  good  although  expensive  service  to  inferior  ac- 
commodations at  low  fares.  Whether  this  is  true  of  all 
classes  of  American  people  is  open  to  question ;  but  there 
is  no  doubt  that  excellence  rather  than  economy  has  been 
the  goal  in  the  development  of  the  passenger  service. 

Among  the  results  following  the  pursuit  of  these  dif- 
ferent aims  in  the  two  main  branches  of  the  railroad  busi- 
ness has  been  a  large  increase  in  the  average  freight  train 
load,  and  a  smaller  change  in  the  average  number  of  persons 
per  passenger  train.  In  1890  the  number  of  tons  of  revenue 
freight  per  train  averaged  175;  in  1900  the  average  was  344 


PASSENGER  SERVICE 


18:i 


tons,  and  in  1918  it  was  628  tons.  The  number  of  passengers 
per  train  was  41  in  1890,  and  also  in  1900;  in  1905  the  aver- 
age was  48  and  in  1918  it  was  76.  There  was  an  increase 
in  the  number  of  people  carried  and  in  the  distance  trav- 
eled by  them,  but  the  growing  demand  for  frequency  of 
service,  speed  and  comfort  resulted  more  in  the  increase 
of  trains  than  in  a  gain  in  passenger  train  load. 

Another  result  has  been  a  more  rapid  decline  in  freight 
rates  than  in  passenger  fares.  The  facts  regarding  rates, 
fares,  and  revenue  are  indicated  by  the  following  figures : 


1890 

1900 

1906 

1913 

1918 

Revenue  per  passenger  per  mile,  cents 

Revenue  per  ton  of  freight  per  mile,  cents.  . 
Revenue  per  train  mile,  passenger  trains, 

Revenue  per  train  mile,  freight  trains,  dol- 
lars   

2 .  167 
•  941 

1.086 

1.654 

2.003 
.729 

1 .010 

2.000 

2.003 
.748 

1 .203 

2.608 

2  .008 
•  729 

1-356 

3243 

2.414 

.849 

2.232 
5-334 

- 

From  1890  to  1900  passenger  earnings  per  passenger  mile 
declined  8  per  cent,  and  freight  earnings  per  ton  mile  fell 
during  the  same  period  23  per  cent.  In  the  freight  service 
the  decrease  in  rates  was  more  than  offset  by  the  introduc- 
tion of  more  economical  methods  of  conducting  the  busi- 
ness, so  that  there  was  a  large  gain  in  the  earnings  per  mile 
run  by  freight  trains  ;  but  in  the  passenger  service  that  was 
not  possible,  and  the  train  revenue  fell  off  slightly.  The 
figures  for  1900  and  1906  reflect  the  influence  of  the  highly 
prosperous  times  then  prevailing,  and  show  an  arrest  in 
the  downward  tendency  of  rates  and  fares.  From  1906 
to  1914  there  was  but  little  change  in  passenger  fares.  The 
receipts  per  ton  per  mile  from  freight  traffic  increased 
slightly  until  191 1,  and  declined  during  the  next  five  years. 
Following  1917  both  freight  and  passenger  earnings  ad- 
vanced rapidly  because  of  the  general  increases  in  rates 
and  fares. 


184  RAILROAD  TRANSPORTATION 


Another  difference  between  the  freight  and  passenger 
services  arises  from  the  fact  that  freight  has  to  be  loaded 
and  unloaded  at  terminals,  and  yards  and  depots  have  to 
be  provided  for  storing  cars  and  goods.  The  terminal 
costs  in  the  freight  service — labor,  yardage,  and  storage — ■ 
constitute  a  larger  share  of  the  total  expenses  than  is  the 
case  in  the  passenger  branch  of  the  business.  In  the  large 
cities,  passenger  stations  are  large  structures  located  where 
real  estate  is  valuable,  but  they  cost  less  than  do  the  facili- 
ties for  handling  freight,  and  passengers  not  only  board 
and  leave  the  trains  without  assistance,  but  do  so  promptly 
upon  the  arrival  of  the  train,  so  that  the  railroad  company 
is  obliged  to  provide  neither  extensive  yardage  for  the 
coaches  nor  housing  accommodations  for  the  traveling  pub- 
lic, except  for  the  brief  time  they  must  wait  for  trains. 

Another  fact  affecting  the  cost  of  the  service,  the  utiliza- 
tion of  cars,  and  the  methods  of  conducting  the  business, 
is  that  passenger  travel  is  practically  the  same  in  each  di- 
rection. People  who  leave  home  return  to  their  homes ; 
but  commodities  are  shipped  from  the  places  of  production 
to  the  localities  where  they  are  to  be  used  or  consumed ; 
and  while  everyone  who  produces  is  also  a  consumer,  those 
who  supply  the  world  with  foods  and  raw  materials  dispose 
of  much  more  tonnage  than  they  purchase.  In  the  United 
States  the  freight  from  the  Western  and  Southern  States 
to  the  seaboard  and  to  the  manufacturing  centers  is  much 
heavier  than  that  toward  the  interior  of  the  country.  If 
freight  traffic  were  equal  in  each  direction,  the  average 
train  load  would  be  heavier  and  the  costs  of  transporta- 
tion would  be  less.  In  spite  of  the  equilibrium  of  travel  to 
and  fro,  the  average  passenger  train  carries  only  j6  persons, 
or  about  five  and  one-half  tons  of  paying  load,  so  strong 
are  the  forces  compelling  frequency,  speed,  and  luxury 
in  the  service.  If  travel,  like  the  movement  of  commodi- 
ties, were  mainly  in  one  direction,  the  coaches  would  contain 


PASSENGER  SERVICE  185 

fewer  passengers  on  the  average  than  they  now  do,  and  the 
fares  would  need  to  be  higher  than  under  existing  condi- 
tions. 

The  number  of  passenger  trips  taken  on  American  rail- 
roads in  1900  was  576,865,230,  and  in  191 8,  1,084,997,896, 
an  increase  of  88  per  cent.  The  aggregate  length  of  trips 
taken  in  1918  was  42,676,579,199  miles,  the  average  jour- 
ney per  passenger  or  the  average  length  of  trip  being 
39.33  miles.  The  increase  in  the  speed  of  trains  and  in 
the  comforts  of  travel  was  accompanied  by  a  greater 
amount  of  long-distance  travel,  the  average  trip  having 
lengthened  over  fifteen  miles  since  1890. 

The  revenue  derived  directly  from  the  passenger  service 
was  $323,715,639  in  1900  and  $1,027,014,627  in  1918.  The 
income  from  the  carriage  of  mail  and  express,  and  from 
other  earnings  attributable  to  the  passenger  service,  was 
$74,300,000  in  1900  and  $196,000,000  in  1914.  From  the 
operation  of  passenger  trains  slightly  more  than  one-fourth 
(25.21  per  cent  in  1918)  of  the  operating  income  of  rail- 
roads is  received.  In  New  England  the  passenger  revenues 
comprise  a  much  larger  share  of  the  total,  almost  one-half  of 
the  earnings  from  operation  being  derived  from  passenger 
trains.  In  general,  the  passenger  receipts  as  compared  with 
those  from  freight  are  relatively  greater  the  more  thickly 
the  region  served  by  the  railroads  is  settled ;  but  such  a  dis- 
trict as  that  occupied  by  the  Rocky  Mountain  and  Pacific 
Coast  States  of  the  United  States  is  an  exception  to  the 
general  rule.  That  part  of  the  United  States  ranks  next 
to  New  England  as  regards  the  ratio  of  passenger  revenue  to 
total  receipts  from  railroad  traffic. 

The  foregoing  figures  show  that  the  people  of  the  United 
States  travel  frequently ;  but  a  comparison  of  our  country 
with  the  European  countries  having  the  most  highly  de- 
veloped means  of  transportation  indicates  a  greater  use 
pf  the  railroads  for  travel  by  some  foreign  people  than  by 


186  RAILROAD  TRANSPORTATION 

Americans.  Although  there  is  a  far  greater  mileage  of  rail- 
road in  the  United  States  than  in  any  other  country,  the 
network  of  lines  is  spread  over  a  vast  extent  of  territory, 
and  in  a  large  part  of  the  country  serves  a  scattered  and 
sparse  population ;  while  in  the  United  Kingdom  nearly 
half  as  many  people  as  there  are  in  the  entire  United  States 
dwell  within  an  area  the  size  of  three  American  States 
of  medium  proportions.  Long  distances  deter  people  from 
traveling  for  pleasure,  and  induce  men,  when  possible, 
to  do  business  by  mail  and  telegraph.  The  conditions  favor- 
ing travel  are  a  dense  population  living  mainly  in  cities  and 
having  an  average  income  large  enough  to  make  travel 
possible. 

The  people  of  the  U"nited  Kingdom  take  about  one-fourth 
more  trips  than  do  the  people  of  the  United  States,  although 
there  are  more  than  twice  as  many  people  in  the  United 
States.  In  1913  the  average  number  of  trips  per  year 
per  person  taken  by  the  Briton  was  about  28.5,  while  for 
the  inhabitant  of  the  United  States  the  average  was  10.4. 
In  the  number  of  passenger  trips  taken  yearly  the  rank 
of  the  United  States  among  other  countries  is  approximately 
as  follows:  the  United  Kingdom,  28.5;  Germany,  26.4; 
Belgium,  24.1;  France,  13;  United  States,  10.4;  Canada, 
6.2 ;  Italy,  2.5.  The  significance  of  these  figures  is  modified 
by  the  greater  average  length  of  the  trip  taken  by  the 
American,  who  travels  a  few  more  miles  each  year  than  do 
the  inhabitants  of  the  leading  European  countries.  The 
passenger  traffic  on  European  railroads  is  much  denser  than 
on  those  in  the  United  States.  An  equal  mileage  of  road 
accommodates  a  much  greater  traffic  in  Europe  than  in 
the  United  States.  This  is  shown  by  dividing  the  total 
number  of  miles  traveled  by  all  passengers  (the  "passenger 
miles'')  by  the  miles  of  railroad.  Such  a  calculation 
shows  the  miles  traveled  per  mile  of  railroad  to  be  about 
600,000  in  the  United  Kingdom,  678,000  in  Germany,  432'000 


PASSENGER  SERVICE  187 

in  France,  and  137,000  in  the  United  States  in  1912.1 
In  all  countries,  the  United  States  included,  passenger  ac- 
commodations of  different  degrees  of  excellence  are  pro- 
vided by  the  railroads,  the  charge  for  the  best  class  of  serv- 
ice being  more  than  for  the  lower  classes.  In  European 
countries,  from  three  to  five  grades  or  classes  of  service  are 
offered.  In  the  United  Kingdom  and  most  of  the  Con- 
tinental countries  there  are  three  classes — first,  second,  and 
third ;  but  in  Germany  there  are  four  classes,  besides  special 
accommodations  for  the  military,  which  may  be  considered 
a  fifth  class.  In  the  military  and  fourth  classes  the  coaches 
are  but  little  better  than  box  freight  cars  fitted  with  benches. 
The  third-class  car,  or  compartment,  contains  comfortable 
seats,  often  without  upholstery.  In  the  second  class  the 
passenger  is  given  more  room,  he  has  an  upholstered  seat, 
and  there  are  adequate  toilet  facilities.  The  first-class 
compartment  has  more  elegant  fittings  and  appointments 
than  the  second  class,  but  the  comforts  are  practically  the 
same.  In  the  United  Kingdom  there  is  not  a  great  dif- 
ference between  the  accommodations  afforded  by  the  second- 
class  and  third-class  services,  both  of  which  compare  fa- 
vorably with  the  second-class  service  of  Germany.  On  a 
few  railway  lines  in  England  the  second-class  service  has 
been  entirely  dispensed  with.  In  nearly  all  European 
countries  workmen's  trains  are  run  at  certain  times  during 
the  day,  offering  a  special  service  at  very  low  rates  to 
laborers  whose  work  takes  them  some  distance  from  their 
homes. 

The  traveling  public  in  Europe  desires  the  classification 
of  passengers  for  two  reasons :  one  economic,  and  the  other 
purely  social.  The  great  majority  of  the  people  wish  to 
travel  inexpensively,  preferring  economy  to  luxury,  and 
their  demand  for  a  cheap  service  is  met  by  the  railroads  in 

1  Statistics  of  travel  since  1013  do  not  give  a  satisfactory  basis 
of  comparison  became  of  the  conditions  created  by  the  World  War. 


188 


RAILROAD  TRANSPORTATION 


the  third  and  fourth  classes,  and  in  the  slow  trains  upon 
which  lower  fares  are  charged  than  on  the  fast  trains. 
The  minority  of  the  passengers  are  able  to  pay  high  fares 
for  more  elegant  accommodations  and  for  the  social  dis- 
tinction attaching  to  traveling  in  a  class  above  that  taken 
by  most  people.  In  countries  where  social  divisions  are 
sharply  drawn,  the  larger  fares  exacted  for  the  second 
and  first  classes  as  compared  with  the  third  are  paid  mainly 
because  the  first  and  second  classes  are  taken  by  only  a 
few  people. 

In  countries  where  there  are  only  three  classes,  about 
nine-tenths  of  the  passengers  ride  third  class,  and  where 
there  are  four  classes  somewhat  more  than  nine-tenths 
choose  the  two  lower  classes.  The  first  class  is  patronized 
less  than  any  other.  The  division  of  passengers  among 
the  several  classes  in  several  representative  foreign  coun- 
tries is  shown  by  the  following  table. 

Divisions  of  passenger  travel  in  various  classes  in  various  countries 


Country- 


Germany 

Switzerland 

Belgium  (state)  .  . 

India 

Norway 

Sweden  (state) . . . 

Denmark 

United  Kingdom . 

France 

Austria 

Hungary 


Year 


1012 
ion 
ion 

IOI2 

ion 

IOI2 
IOI2 

1913 

IOII 
1012 
1012 


Per  cent  of  all  passengers  in  class 


o.  10 

0.57 
90 
20 
06 
1 

22 
1  2 
22 

4 

1 


10.62 
0.82 


22 
9 
2 
98 


I8.38 

5-9 

14.6 


42.00 

86.78 

88.48 

96.20 

96.72 

93-8 

90.6 

96.9 

77-4 

92.6 

82.2 


49.  20 
5.48 

'2^78 


Military 
class 


1 . 1 
2. 1 


Total 


100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 


1  Special  class. 

2  Intermediate  class  between  2d  and  3d. 


In  the  United  States  the  passenger  traffic  is  not  classi- 
fied to  the  extent  that  is  customary  in  Europe,  but  the 
railroads  furnish  different  grades  of  service  corresponding 


Comparative  data  concerning  passenger  traffic  in  selected  foreign  countries 

and  the  United  States 


Country 


Germany 

United  Kingdom 

France 

Canada 

Japan 

United  States. . . 


Year 


1913 
1912 
1911 
1913 
1911 
1914 


Number  of 
passengers 

(in  millions) 


1,797 
1,294 

511 
46 

151 
1,053 


Number  of 

passenger 

miles 

(in 

millions) 


25,593 
U.123 
10,899 
3,266 
3,382 
35,258 


Number  of 
passengers 
per  head 

of 
population 


26.8 

28.5 

13 
6.2 
2.9 

10.7 


Country 


Germany 

United  Kingdom 

France 

Canada 

Japan 

United  States.  .  . 


Year 


1913 
1912 
1911 
1913 
1911 
1914 


Number  of 

passenger 

miles  per 

head  of 

population 


382 
309 
275 
421 

64. 
358 


Average 
length 

of 
trip  in 
miles 


14.2 
8 
21.3 
7i 

22.4 
33-6i 


Receipts 

per 
passenger 


cents 
12.9 
16.6 
31.8 

140 
15.5 
66.4 


Country 

Year 

Receipts 
per  passen- 
ger per  mile 

Number  of 

passengers 

per  train 

Revenue 
per  passen- 
ger train 
mile.  (From 
passenger 
service 
only) 

1913 
1912 
1911 
1913 
1911 
1914 

cents 

0.91 

1-525 

1.49 

1-973 

.69 
1.982 

84 

09 

62 

in 

56 

cents 
76 

France 

103 

Canada  

122 

Japan 

77 

United  States 

no 

Country 


Germanv 

United  Kingdom 

France 

Canada  

Japan 

United  States.  .  . 


Year 


1913 
1912 
1911 
1913 
1911 
1914 


Passenger  den- 
sity. (Passenger 
miles  divided 
by  miles  of 
railroad) 


678,38s 
602,506 
432,625 
1 1 1 ,440 
683,351 
144,278 


Freight  density. 
(Ton  miles  di- 
vided by  miles 
of  railroad; 
net  tons) 


,078,580 
559.578 
573.095 
786,000 
474.317 

,176,923 


189 


190  RAILROAD  TRANSPORTATION 

in  a  general  way  to  the  classes  found  on  foreign  roads. 
Broadly  speaking  there  are  two  standard  and  regular  classes 
of  passenger  service  in  this  country.  By  far  the  most 
important  is  the  "first-class"  coach  service  which  is  used 
by  more  than  95  per  cent  of  the  passengers  carried  annually. 
Above  this  service  nearly  all  railroads  have,  on  their  long- 
distance trains,  sleeping  cars  and  parlor  cars,  in  which 
accommodations  may  be  secured  by  the  holders  of  first-class 
tickets  on  the  payment  of  an  extra  fare.  Over  the  main 
routes  of  long-distance  travel  nearly  all  trains  carry  both 
parlor  and  day  coaches — that  is,  they  regularly  provide 
two  classes  of  service,  and  some  of  the  best  trains  on 
those  routes  consist  entirely  of  parlor,  sleeping  and  dining 
cars. 

In  addition  to  the  "first-class"  service  and  the  Pullman 
service,  as  the  sleeping  and  parlor  car  accommodations 
are  called,  the  railroads  of  the  United  States  offer  certain 
special  and  irregular  services  inferior  to  the  first  class,  the 
most  important  of  which  are  the  so-called  "second-class" 
service,  the  immigrant  service  and  the  colonist  service. 
Until  recently  most  of  the  railroads  sold  second-class  tickets 
for  all  kinds  of  travel,  but  the  use  of  these  tickets  in  local 
service  has  now  been  nearly  everywhere  discontinued.  How- 
ever, second-class  tickets  for  long-distance  travel  are  sold 
generally  west  of  the  Mississippi  River.  Ordinarily  the 
holder  of  a  second-class  ticket  is  entitled  to  a  seat  in  the 
smoking  car,  or  sometimes  in  the  day  coach,  and  is  not 
permitted  to  purchase  accommodations  in  the  "Pullman" 
cars.  In  some  parts  of  the  West  special  second-class  coaches, 
and  "tourist  sleeping  cars,"  in  which  berths  may  be  secured 
by  the  holders  of  second-class  tickets,  are  provided.  Sec- 
ond-class passenger  traffic  has  never  been  encouraged  or 
stimulated  in  the  United  States,  and  the  volume  of  that 
class  of  travel  is  probably  declining.  This  may  be  ex- 
pected to  continue  until  the  railroads  change  their  policy  and 


PASSENGER  SERVICE  191 

run  second-class  trains  and  cars  as  a  regular  part  of  their 
service. 

The  immigrant  service  offered  by  the  railroads  rose  in 
response  to  the  need  for  a  means  of  giving  adequate 
protection  to  the  newly  arrived  foreigners  and  of  distribut- 
ing them  from  the  eastern  seaports  to  other  sections  of 
the  country.  The  immigrant  traffic  originates  chiefly  at 
New  York,  where  the  greatest  portion  of  the  foreign  immi- 
grants land  in  the  United  States,  though  there  is  a  small 
traffic  at  other  eastern  and  at  southern  ports.  At  New 
York  the  railroads  organized  in  1886  the  Immigrant  Clearing 
House,  the  agents  of  which  care  for  the  immigrants  from 
the  time  they  are  landed  until  they  are  placed  on  board  the 
train.  The  traffic  is  divided  among  the  various  roads 
according  to  joint  arrangements  and  to  some  extent  it  serves 
as  a  means  of  equalizing  the  through  passenger  business 
of  competing  lines.  The  accommodations  provided  for 
the  immigrants  are  inferior  and  the  fares  are  naturally 
low.  The  equipment  used  in  the  service  usually  consists 
of  old  first-class  passenger  cars,  that  are  comfortable  and 
safe,  the  immigrants  providing  whatever  sleeping  facilities 
they  desire.  Ordinarily  the  traffic  is  handled  by  special 
trains,  but  when  the  number  of  passengers  is  small  they 
are  forwarded  in  a  separate  car  attached  to  a  regular  train. 
The  "colonist  fares"  offered  by  railroads  are  low  fares, 
effective  for  periods  varying  from  30  to  60  days,  during 
the  spring  and  fall,  from  points  in  the  East  to  the  Pacific 
coast  and  far  Western  States.  Their  purpose  is  to  en- 
courage the  movement  of  settlers  to  the  West. 

Another  important  feature  of  the  passenger  traffic  of 
American  railways  is  the  large  excursion  service.  It  is 
a  general  custom  for  railroads  to  make  low  round-trip  fares 
for  special  occasions,  such  as  presidential  inaugurations, 
conventions,  world,  state,  and  county  fairs,  and  hundreds 
of  other  large  and  small  events.     Seasonal  excursions  to 


192  RAILROAD  TRANSPORTATION 

pleasure  resorts — to  the  seashore,  lakes  and  mountains  in 
the  summer,  to  the  South  in  the  winter — are  regularly 
provided,  and  Sunday  and  holiday  excursions  are  arranged 
for  the  benefit  of  the  laboring  and  professional  classes.  By 
offering  cheap  excursion  services  the  railroad  companies 
induce  many  persons  to  travel,  who,  without  such  services, 
would  stay  at  home.  The  traffic  increases  each  year  with 
the  growth  of  population  and  the  increase  of  the  prosperity 
of  all  classes.  The  character  of  the  service  depends  upon 
the  class  of  travelers  being  appealed  to  and  the  purpose 
of  the  excursion ;  some  of  the  trains  contain  only  high-grade 
Pullman  equipment,  while  the  cheapest  excursion  trains 
are  made  up  of  more  or  less  out-of-date  day  coaches. 

Freight  and  passengers  are  classified  in  a  different  way 
and  for  unlike  purposes,  but  in  some  particulars  the  rea- 
son for  the  classification  is  the  same.  Differences  in  the 
cost  of  the  service  and  in  the  ability  of  the  article  to  pa)' 
charges  determine  the  class  to  which  a  commodity  is  assigned 
and  the  rate  which  it  must  bear ;  likewise  the  fares  collected 
for  each  of  the  several  grades  or  classes  of  passenger  service 
are  fixed  with  reference  to  differences  in  the  costs  of  the 
service  and  in  the  ability  and  willingness  of  various  classes 
of  travelers  to  pay.  In  the  passenger,  as  well  as  in  the 
freight  business,  the  range  of  charges  as  between  the  higher 
and  lower  classes  is  much  greater  than  the  difference  in 
the  costs  of  service. 

Most  American  railroad  companies,  unlike  those  in  for- 
eign countries,  place  the  sleeping,  parlor,  and  dining  car 
services  in  charge  of  a  separate  company.  The  Pullman 
Palace  Car  Company,  of  Chicago,  from  the  beginning  of  this 
service  in  the  years  1865- 1866  has  owned  and  operated 
most  of  the  cars  in  use.  For  many  years  the  Wagner 
Palace  Car  Company,  of  Buffalo,  built  and  managed  from 
one-fourth  to  one-third  of  the  sleeping,  parlor,  and  dining 
cars,  the  Vanderbilt  interests  controlling  the  company.    In 


PASSENGER  SERVICE  193 

1899  the  two  companies  consolidated  under  the  name  of  the 
Pullman  Company,  and  at  the  present  time  that  company 
controls  all  these  extra-fare  cars  excepting  the  relatively 
small  number  operated  by  the  railroad  companies.  The 
Chicago,  Milwaukee  and  St.  Paul,  the  Canadian  Pacific,  the 
Great  Northern,  and  a  few  other  companies  own  and  oper- 
ate sleeping  cars. 

The  respective  rights  and  obligations  of  the  Pullman  Com- 
pany and  the  railroads  over  whose  lines  its  cars  operate  are 
definitely  fixed  by  contract.  The  contracts  with  various 
railroad  companies  differ  considerably,  but  there  are  several 
provisions  that  are  common  to  a  number  of  them.  The 
railroad  company  carries  free  the  employees  and  officers 
of  the  Pullman  Company ;  provides  quarters  where  tickets 
may  be  sold ;  hauls,  switches,  and  inspects  the  cars ;  makes 
ordinary  running  repairs ;  and  pays  a  rental  or  mileage  for 
the  use  of  each  car.  The  amount  of  the  mileage  payment 
is  usually  graduated  according  to  the  annual  gross  earnings 
of  the  car  from  Pullman  tickets,  and  on  most  roads  if 
the  annual  earnings  exceed  a  certain  sum,  no  mileage  pay- 
ment is  required.  The  Pullman  Company  on  its  side  fur- 
nishes sleeping  cars  sufficient  in  number  to  meet  all  re- 
quirements ;  furnishes  conductors,  porters  and  other  needed 
servants,  and  agrees  not  to  rent  more  than  one  stateroom 
or  section  against  one  ticket  unless  with  the  consent  of  the 
railroad  company. 

The  Pullman  Company  receives  for  its  cars,  in  addition 
to  mileage  payments  from  the  railroads,  the  extra  fares  paid 
by  the  passengers  for  the  privilege  of  riding  in  the  parlor 
or  sleeping  cars.  The  railroad  company  receives  the  regular 
fares  paid  for  the  first-class  tickets,  and  in  addition  a 
surcharge  equal  to  one-half  the  amount  of  the  Pull- 
man fare.  On  some  especially  fast  trains  the  railroads 
charge  more  than  the  usual  first-class  fare,  to  cover 
the   additional    expense    of    running   the    trains    at    a  high 


194  RAILROAD  TRANSPORTATION 

speed.  The  parlor  and  sleeping  coaches  are  much  heavier 
than  the  ordinary  first-class  day  coach,  and  have  accom- 
modations for  fewer  people;  hence  the  profits  received  by 
the  railroads  from  the  parlor  and  sleeping  car  traffic  are 
really  smaller  than  those  obtained  from  the  day  coach 
service.  Some  one  has  said  that  "the  man  who  sits  up  all 
night  in  the  day  coach  helps  pay  the  fare  of  the  man 
who  rides  in  the  Pullman  car."  This,  however,  is  not 
strictly  accurate,  because  the  parlor  and  sleeping  car  service 
is  probably  not  often  conducted  at  a  loss. 

The  railroad  companies  have  found  it  to  their  advantage 
to  rent  the  parlor  and  sleeping  coaches  instead  of  owning 
them,  because  the  Pullman  Company,  having  control  of  a 
great  number  of  cars,  is  able  to  supply  the  railroad  with  just 
the  number  of  cars  required.  The  number  of  Pullman  cars 
required  by  a  railroad  company  varies  with  the  volume  of 
travel,  which  is  greater  in  some  seasons  of  the  year  than 
in  others,  and  which  may  temporarily  be  largely  increased 
by  some  convention,  exposition,  or  other  extraordinary 
event.  When  one  railroad  company  or  one  section  of  the 
country  has  a  large  demand  for  coaches,  some  other  com- 
pany or  section  will  probably  not  need  more  than  the  usual 
quota,  and  the  Pullman  Company  is  thus  able  to  distribute 
the  cars  economically  according  to  the  needs  of  the  service. 
If  each  railroad  company  owned  coaches  enough  to  supply 
its  needs  when  the  travel  over  its  lines  was  heaviest,  some 
companies  would  have  on  hand  a  large  number  of  idle 
coaches  much  of  the  time.  This  condition,  however,  is  being 
changed  by  the  railroad  consolidations  and  the  develop- 
ment of  systems  serving  large  sections  of  the  country. 
A  railroad  system  such  as  the  Southern,  the  Pennsylvania, 
the  Vanderbilt,  or  the  Hill  lines,  operates  over  such  a  wide 
stretch  of  country  that  the  volume  of  travel  on  its  system 
as  a  whole  must  vary  within  a  small  enough  range  to  enable 
the  company  to  employ  its  parlor,  sleeping  and  dining  car 


PASSENGER  SERVICE  195 

equipment  economically.  No  such  company  as  the  Pull- 
man could  absorb  practically  all  the  field  were  it  to  start 
under  the  conditions  now  prevailing,  but  having  acquired  the 
business  as  it  developed,  the  Pullman  Company  will  doubt- 
less continue  for  some  time  to  come  to  perform  the  service 
it  is  now  rendering.  Eventually,  however,  the  large  rail- 
road companies  will  probably  own  and  operate  the  sleep- 
ing, dining,  and  parlor  cars  used  on  their  several  lines. 

Corresponding  to  the  shipping  papers  used  in  the  freight 
service  are  the  passenger  tickets  used  in  the  passenger  serv- 
ice. There  are  many  types  of  tickets  issued  to  meet  par- 
ticular needs.  In  general  there  are  two  classes :  local 
tickets,  good  for  transportation  between  points  on  the 
same  road,  and  interline  tickets,  valid  on  connecting  lines ; 
but  there  are  many  forms  of  each  of  these  two  classes. 
The  most  common  are  the  first-class  tickets  (local  or  inter- 
line) which  may  be  single-trip  or  round-trip;  excursion 
tickets,  which  are  usually  limited  as  to  time  and  class  of 
service  and  are  non-transferable ;  and  reduced-fare  tickets 
including  second-class,  commutation,  mileage,  immigrant, 
clergy  and  children's  tickets.  Every  ticket  bears  the  names 
of  the  points  of  origin  and  destination,  certain  contract 
provisions  between  the  railroad  company  and  the  purchaser, 
the  printed  signature  of  the  head  of  the  passenger  traffic 
department,  a  consecutive  number  and  a  form  number. 

All  first-class  tickets  and  some  of  the  other  forms  of 
tickets  entitle  the  holder  to  have  a  certain  quantity  of 
baggage  transported  to  his  destination  free  of  charge.  Each 
piece  of  baggage  is  tagged  with  a  "check,"  a  duplicate  of 
which  is  given  to  the  passenger  to  enable  him  to  claim  his 
property  at  the  end  of  the  journey.  The  baggage  arrange- 
ments in  the  United  States  are  superior  to  those  in  most 
foreign  countries,  and  the  American  railroads  are  especially 
liberal  in  the  weight  of  baggage  which  a  passenger  may 
take  without  extra  charge.     In  the  United  Kingdom  the 


196  RAILROAD  TRANSPORTATION 

passenger  receives  no  baggage  check,  and  is  obliged  to 
identify  and  claim  his  "luggage"  at  the  end  of  the  trip.  On 
the  Continent  of  Europe  the  passenger  receives  a  check  for 
his  baggage,  but  the  weight  of  baggage  which  he  may 
check  without  extra  payment  is  usually  limited  to  56  pounds, 
and  in  some  countries  nothing  but  hand  baggage  is  exempted 
from  charges.  In  the  United  States  the  railroads  permit  the 
passenger  to  carry  as  much  hand  luggage  as  he  wishes,  and 
on  most  tickets  will  check  150  pounds  without  charge.  This 
extra  baggage  service  should  be  taken  into  consideration  in 
comparing  passenger  fares  in  the  United  States  with  those 
abroad. 

In  most  passenger  trains  there  are  more  seats  vacant  than 
occupied,  the  average  number  of  passengers  per  train  in  the 
United  States  being  only  76.  Over  many  routes  an  increase 
of  50  per  cent  in  the  number  of  persons  carried  would 
add  little  or  nothing  to  the  expenses  of  operation.  Under 
these  conditions,  profits  rise  very  rapidly  with  even  a 
moderate  increase  in  business,  and  consequently  the  railroad 
company  always  has  a  strong  incentive  to  enlarge  the  pat- 
ronage of  its  road. 

Many  means  are  employed  to  accomplish  this.  The 
companies  advertise  to  some  extent  in  the  daily,  weekly, 
and  monthly  journals,  and  place  descriptive  literature  in 
conspicuous  places.  Ticket  offices  are  located  in  the  most 
central  sections  of  the  large  cities;  agents  are  employed 
to  solicit  patronage,  and  excursions  for  many  purposes 
and  to  many  places  are  organized  by  the  railroads.  Some 
official  in  the  passenger  department  has  general  charge  of 
the  excursion  business.  Among  other  devices  to  increase 
travel  are  the  "personally  conducted"  tours  which  many 
companies  are  now  successfully  organizing. 

The  "resort"  traffic  and  suburban  traffic,  or  what  is  fre- 
quently called  the  commutation  business,  are  zealously  stimu- 
lated by  reductions  in  fares  and  by  offering  an  attractive 


PASSENGER  SERVICE  197 

service.  With  the  growth  of  wealth  in  the  United  States 
and  the  increase  in  the  number  of  those  who  can  afford 
recreation  the  summer  travel  between  the  cities  and  the 
seashore  and  mountain  resorts  is  rapidly  expanding.  Like- 
wise the  change  from  city  to  suburban  residence  for  a  part 
or  all  of  the  year  is  taking  place  with  accelerating  rapidity  as 
the  inconvenience,  discomfort,  and  expense  of  getting  to 
and  from  the  city  are  being  lessened.  In  stimulating  sub- 
urban residence  the  trolley  and  other  electric  lines  have 
been  quite  as  influential  as  the  steam  railroad,  and  by  their 
competition  have  in  some  instances  compelled  the  railroad 
companies  to  make  their  service  more  attractive  by  reducing 
fares  and  offering  better  accommodations.  The  electric 
lines  have  in  some  cases  taken  so  much  of  the  short-distance 
suburban  traffic  away  from  the  steam  lines  as  to  cause  them 
to  curtail  or  abandon  part  of  the  service  previously  per- 
formed. However,  the  result  of  the  electric  lines  upon  the 
growth  of  the  suburbs  has  often  been  to  cause  such  an  in- 
crease in  population  as  to  enlarge  ultimately  the  traffic  of 
the  railroads  as  well  as  that  of  their  competitors. 

There  are  two  general  methods  of  inducing  people  to  use 
the  railroads  more  frequently :  one  is  the  reduction  of  fares, 
the  other  is  the  improvement  of  the  service.  The  American 
railroads,  generally  speaking,  have  been  more  inclined  to 
follow  the  latter  plan.  They  have  acted  upon  the  theory 
that  they  were  serving  a  people  having  a  relatively  high 
average  income  and  willing  to  pay  liberally  for  comfort, 
speed,  and  luxury  when  traveling ;  accordingly,  the  rivalry 
of  competing  companies  has  led  to  the  introduction  of  a 
more  expensive  and  more  luxurious  service  rather  than  a 
cheaper  one.  As  was  stated  above,  fares  have  declined 
very  slowly  as  compared  with  rates.  A  reduction  of  fares 
to  stimulate  traffic  has  been  made  in  many  cases,  but  greater 
dependence  has  been  placed  upon  speed  and  comfort  than 
upon  cheap  fares  to  attract  travel. 


198  RAILROAD  TRANSPORTATION 

It  is  possible  that  a  less  expensive  service  offered  at 
rates  considerably  lower  than  those  prevailing  might  result 
in  much  more  travel.  There  are  some  students  of  the  sub- 
ject who  think  that  there  would  be  a  large  demand  for  a 
cheaper  service  in  this  country,  and  who  believe  that  the 
experience  of  the  foreign  railroads,  whose  inferior  but  in- 
expensive service  has  caused  the  poor  people  to  travel 
extensively,  would  be  repeated  in  this  country  if  the  Ameri- 
can railroads  were  to  offer  the  masses  of  people,  whose  in- 
come is  small  and  to  whom  speed  and  luxury  are  not  of 
prime  consequence,  an  opportunity  to  travel  for  fares 
much  lower  than  those  now  charged  for  first-class  tickets. 

In  considering  methods  for  increasing  the  use  of  the 
railroads  for  travel,  the  fact  should  be  kept  in  mind  that 
"the  greatest  elasticity  of  demand"  exists  among  those 
to  whom  expensive  travel  is  impossible.  The  desire  for 
travel  is  universal,  and  if  the  costs  of  traveling  can  be 
brought  within  the  means  of  all  with  the  possible  excep- 
tion of  the  very  poorest  classes  of  society,  the  number  of 
journeys  taken  can  be  greatly  increased.  The  recent  ad- 
vances of  charges  both  in  this  country  and  abroad  indicate 
that  passenger  traffic  tends  to  vary  more  than  proportion- 
ately with  changes  in  fares. 

It  does  not  necessarily  follow  that  the  revenues  derived 
from  the  larger  traffic  at  lower  fares  will  be  more  profitable 
to  the  railroads,  but  there  are  reasons  for  believing  that  the 
addition  to  the  present  passenger  business  of  American  rail- 
roads of  a  large  volume  of  traffic  taken  at  low  fares  would 
add  to  the  net  profits  of  the  companies.  With  an  average 
train  load  of  only  76,  it  can  hardly  be  doubted  that  ex- 
penses will  be  enhanced  but  slightly  by  additional  busi- 
ness. The  railroad  business  is  one  of  "increasing  returns" 
under  practically  all  conditions — a  business  in  which  prof- 
its rise  more  than  proportionately  with  an  increase  in  the 
business  done — and  the  passenger  service  as  at  present  con- 


PASSENGER  SERVICE  199 

ducted  is  one  in  which  the  law  of  increasing  returns  would 
operate  very  strongly.  There  is,  moreover,  the  practical 
effect  of  low  fares  in  other  countries  to  indicate  what  would 
probably  result  from  the  introduction  of  a  cheaper  service 
at  lower  fares  in  this  country. 

During  recent  years  the  development  of  the  passenger 
service  has  been  influenced  to  some  extent  by  the  use  of 
electricity  instead  of  steam  for  motive  power.  The  growth 
of  the  electric  railway  has  been  rapid.  In  1887  there  were 
13  short  lines,  using  altogether  about  100  cars;  twenty 
years  later  there  were  39,000  miles  of  electric  line  in  the 
entire  country,  Massachusetts,  with  2,233  miles,  having  as 
many  miles  of  street  railways  as  of  trunk-line  railroads. 
In  1919  there  were  in  the  United  States  48,326  miles  of 
electric  railway.  In  the  beginning  these  electric  lines  were 
laid  only  in  city  streets  but  they  soon  became  suburban  and 
interurban  roads.  They  are  now  sharing  with  the  steam 
railroad  not  a  little  of  the  short-distance  traffic  it  formerly 
monopolized,  and  in  several  States  a  large  passenger  busi- 
ness for  comparatively  long  distances  has  been  built  up 
by  interurban  electric  railway  companies. 

Chapter  V  contained  a  brief  discussion  of  the  leading 
technical  advantages  which  the  electric  railway  possesses 
over  the  steam  railroad.  The  unit  of  service  can  be  mul- 
tiplied or  divided  at  will ;  electrical  power  is  clean,  safe, 
and  quiet,  and  it  is  in  many  kinds  of  service  more  economi- 
cal than  steam  power.  In  the  suburban  and  to  a  large 
extent  in  the  interurban  traffic,  the  electric  cars  are  either 
run  on  lines  of  the  connecting  street  railways  or  have  such 
close  connection  with  them  as  to  enable  passengers  to 
travel  directly  without  delay  between  their  residences  and 
places  of  business. 

The  great  advance  in  the  costs  of  transportation  since 
the  beginning  of  the  World  War  has  affected  adversely 
the  prosperity  of  electric   lines  to  an  even  greater  extent 


200  RAILROAD  TRANSPORTATION 

than  that  of  steam  railroads,  and  the  prospects  for  the 
further  construction  of  electric  railways  in  the  near  future 
are  not  bright.  Moreover  the  profits  of  the  electric  rail- 
ways have  been  materially  reduced  by  the  wide  use  of  the 
automobile.  The  traffic  of  virtually  all  electric  lines  is 
chiefly  of  the  short-distance  variety,  and  these  roads  have 
felt  the  competition  of  the  automobile  more  severely  than 
the  steam  roads. 

But  while  the  construction  of  electric  railways  has  been 
checked,  there  is  a  steady  growth  of  sentiment  in  favor 
of  the  electrification  of  steam  railroads.  Electricity  may 
be  expected  to  take  the  place  of  steam  as  the  motive  power 
for  short-distance  traffic,  as,  indeed,  it  has  begun  to  do  in 
the  steam  roads  entering  New  York  City,  Philadelphia  and 
some  other  places.  Whether  electricity  will  supplant  steam 
in  long-distance  traffic  is,  however,  not  yet  certain,  but  it 
would  be  rash  to  predict  what  the  future  development  of 
the  electric  motor  will  be.  The  accomplishments  of  elec- 
trical engineers,  with  their  present  incomplete  knowledge 
of  the  force  with  which  they  are  dealing,  lead  the  world 
to  expect  yet  greater  achievements.  The  possibilities  of 
electricity  are  doubtless  greater  than  those  of  steam,  and 
the  ultimate  use  of  the  electric  motor  in  all  branches  of  the 
transportation  service  seems  a  rational  expectation. 

REFERENCES 

Weyl,  W.  E.  "The  Passenger  Traffic  of  Railways,"  in  Publi- 
cations of  the  University  of  Pennsylvania  (1901).  [The 
book  contains  much  historical  and  statistical  information.] 

Prout,  H.  G.  "Railroad  Travel  in  England  and  America,"  in 
Scribner's  Magazine,  October  and  November  1894. 

Report  of  the  Industrial  Commission,  IV,  758,  759  (1900). 

Bureau  of  the  Census.    Street  and  Electric  Railways  (1912). 

Johnson  and  Huebner.  Railroad  Traffic  and  Rates,  II,  parts 
iv  and  v  (1911). 


CHAPTER  XIII 

THE  EXPRESS  SERVICE  OF  THE  RAILROADS 

General  character  of  the  express  service,  201.  The  origin  of  the 
express  service  and  its  subsequent  development,  203.  The  or- 
ganization of  the  American  Railway  Express  Company,  203. 
Express  shipping  papers,  207.  The  contractural  relations  be- 
tween the  American  Railway  Express  Company  and  the  rail- 
roads, 207.  Express  rates,  209.  Volume  of  express  business, 
213.  The  parcel  post  and  the  express  service,  214.  Should 
the  present  express  service  be  discontinued?  215.  Refer- 
ences, 216. 

The  express  business  is  here  studied  as  a  part  of  the 
transportation  service  performed  by  the  railroads.  Not 
all  domestic  express  matter  is  transmitted  by  rail,  but  the 
railroads  have  now  spread  so  generally  and  so  thickly 
over  most  sections  of  the  United  States  that  the  saddle- 
horse,  the  stage,  and  the  steamboat  have  come  to  be  little 
used  by  the  express  companies.  In  the  service  between 
the  United  States  and  all  foreign  countries  except  Canada 
and  Mexico,  the  steamship  is  necessarily  the  carrier  em- 
ployed. There  are  but  few  of  the  important  phases  of  the 
business  performed  by  the  express  companies  of  the  United 
States  not  manifest  when  the  subject  is  viewed  from  the 
standpoint  taken  in  this  study. 

In  general,  express  traffic  consists  of  the  commodities, 
other  than  mail  matter  and  personal  b"ggage,  transoorted 
on  passenger  trains.  This  statement  does  not  cover  quite 
all  the  business,  because  some  express  goods  are  Gent  by  fast 
trains  carrying  no  passengers,  but  that  is  exceptional  at  the 
present  time.     Among  the  articles  most  frequently  carried 

201 


202  RAILROAD  TRANSPORTATION 

by  express  are  parcels  of  commodities  of  light  weight  and 
high  value,  valuable  papers  and  documents,  books,  maga- 
zines and  other  printed  matter,  paper  money,  coins  and 
precious  stones,  and  perishable  products  requiring  more 
rapid  transportation  and  prompter  delivery  than  the  rail- 
road companies  can  offer  in  their  freight  service.  In  addi- 
tion to  the  transportation  services  performed  by  the  express 
companies,  they  sell  to  travelers  "express  money  orders," 
payable  at  any  of  their  foreign  offices,  and  they  sometimes 
do  an  order  and  commission  business,  collect  accounts  and 
execute  papers. 

We  are  here  concerned  only  with  the  carrying  business 
of  the  express  companies.  Strictly  speaking,  the  express 
business  is  a  part  of  the  freight  service,  both  consisting 
of  the  movement  of  commodities  as  contrasted  with  the 
carriage  of  persons,  which  is  the  passenger  service ;  nor  is 
there  any  sharp  line  of  distinction  between  the  traffic  handled 
by  the  express  companies  and  by  the  railroads  as  fast 
freight.  The  express  company  will  accept  virtually  any 
commodity,  and  the  shipper,  whatever  may  be  the  nature  of 
the  goods  he  is  forwarding,  has  the  option  of  sending  his 
articles  as  freight  on  trains  running  about  15  miles  an 
hour — the  consignee  to  call  at  the  depot  for  the  goods — or 
by  paying  about  four  times  the  ordinary  freight  rate,  hav- 
ing an  express  company  call  at  his  house  or  place  of  business 
for  the  packages  to  be  shipped,  dispatch  them  on  a  train 
making  30  to  50  miles  an  hour,  and  deliver  them  at  the 
street  address  of  the  person  to  whom  the  articles  are  sent. 

In  actual  practice,  the  competition  between  the  express 
and  freight  services  is  neither  so  general  nor  so  keen  as 
the  statement  just  made  might  indicate,  partly  because 
the  relations  of  the  express  and  railroad  companies  are 
regulated  by  contract,  and  partly  because  the  railroad  com- 
pany may  frequently  receive  more  for  carrying  goods  for 
the  express  company  than  would  be  obtained  as   freight 


EXPRESS  SERVICE  OF  RAILROADS       203 

charges  paid  by  the  shipper  of  the  commodities — that  is,  the 
railroad  company's  share  of  the  express  charges  may  be 
greater  than  the  total  charges  would  be  if  the  goods  were 
carried  as  freight.  In  the  past  railroad  companies  have 
sometimes  favored  the  shipment  of  such  bulky  commodities 
as  oysters,  milk,  and  fresh  fruit  by  express,  but  with  the 
recent  development  of  the  fast  freight  service  the  tendency 
is  to  restrict  the  express  traffic  to  parcels. 

During  the  first  decade  of  the  history  of  the  railroads  of 
the  United  States  there  was  no  special  organization  for 
handling  express  matter.  Those  wishing  to  send  valuable 
packages  quickly  to  their  destination  usually  entrusted  them 
to  the  conductors  or  baggage  agents  of  passenger  trains, 
who  left  thern  with  the  station  agents  to  deliver  to  the  con- 
signee when  he  called  for  them.  About  1839,  William  Harn- 
den,  perceiving  the  need  for  a  systematic  and  responsible 
service,  began  receiving  parcels  for  transmission  by  respon- 
sible agents  between  New  York  and  Boston.  He  arranged 
with  the  railroad  and  steamship  lines  to  carry  his  messen- 
gers and  their  packages,  and  soon  organized  a  service  be- 
tween New  York  and  Philadelphia,  and  between  the  United 
States  and  Europe.  By  1850  his  business  had  been  extended 
into  the  southern  United  States. 

Harnden's  business  seems  to  have  been  profitable  from 
the  start,  for  in  1840  Alvin  Adams  began  to  compete  for 
the  New  York  and  New  England  business.  Harnden  found 
the  European  business  so  attractive  that  he  emphasized  that 
more  than  the  domestic  service,  and  thus  gave  Adams  a 
favorable  opportunity  to  enlarge  his  field  of  operation.  In 
1854  Adams  and  Company,  Harnden  and  Company,  and 
two  other  smaller  firms,  Thompson  and  Company  and 
Kinsley  and  Company,  consolidated  and  became  the  Adams 
Express  Company.  The  firms  that  united  to  form  the 
Adams  Express  Company  antedated  any  others  in  the  serv- 
ice, but  the  American  Express  Company  was  established 


204  RAILROAD  TRANSPORTATION 

in  1850  by  the  union  of  the  Livingston  Company,  founded 
in  1 841,  and  the  Wells  Company,  organized  in  1845.   Wells, 
Fargo  and  Company  started  in   1852,  taking  hold  of  the 
California   business    17  years   before   the   first   railroad   to 
the  Pacific  was  completed,  and  at  a  time  when  the  stage- 
coach  and   ponies   were   used   to   transport   packages,   and 
when  the  express  agents  had  many  a  thrilling  episode  with 
Indians  and  highwaymen.    Bandits  seem  to  derive  a  pecul- 
iar satisfaction  from  "holding  up"  the  carriers  of  express 
and  mails,  the  train  robbers  continuing  to  follow  their  nefa- 
rious business   even  at  the   present  time.     The   Southern 
Express  Company  was  organized  in  1886,  its  field  of  activ- 
ity lying  mainly  in  the  region  south  of  the  Potomac  and 
east  of  the  Mississippi.     The  United  States  Express  Com- 
pany  was   organized   in    1854.      It   took   the   central   West 
as  its  special  field  and  at  the  time  of  its  dissolution  in  1914 
most  of  its  business  was  carried  on  in  that  region,  though 
it  had  several  hundred  miles  of  lines  in  New  York,  Penn- 
sylvania and  West  Virginia.     The  Western  Express  Com- 
pany was  founded  in  1894,  and  its  field  of  operation  being 
chiefly  in  Michigan,  Wisconsin,  Minnesota  and  North  Da- 
kota.    Two  express  companies  other  than  the  ones  already 
named  have  had  a  part  in  the  development  of  the  express 
service.     The  Pacific  Express  Company,  organized  in  1879, 
operated  in  the  southwestern  portion  of  the  United  States 
until  August,   191 1,  when  its  business  was  taken  over  by 
Wells,  Fargo  and   Company ;  the  National  Express  Com- 
pany, founded  in   1853,  carried  on  business  in  New  York 
and  New  England  until  July,  1912,  when  its  contracts  were 
assumed  by  the  American  Express  Company. 

When  the  Federal  operation  of  railroads  began  late  in 
1917  the  four  large  express  companies — Adams,  Wells 
Fargo,  American  and  Southern — controlled  about  95  per 
cent  of  the  express  business  of  the  United  States,  operat- 
ing over  approximately  92  per  cent  of  the  railroad  mileage 


EXPRESS  SERVICE  OF  RAILROADS       205 

of  the  country.  The  Director  General  of  Railroads  objected 
to  carrying  out  the  contracts  which  the  express  companies 
had  with  the  railroad  corporations.  He  notified  the  ex- 
press companies  that  if  they  would  organize  a  single  cor- 
poration to  take  entire  charge  of  the  railway  express  busi- 
ness he  would  make  a  contract  with  such  a  corporation. 
The  four  large  companies  first  secured  by  lease  the  business 
of  the  smaller  companies,  and  then  proceeded  to  organize 
a  new  corporation,  the  American  Railway  Express  Com- 
pany, which  took  over  all  the  property  of  the  four  large 
companies,  giving  in  exchange  the  capital  stock  of  the  new 
corporation,  amounting  at  par  to  $34,642,000.  This  cor- 
poration for  a  time  operated  as  a  private  agency  under 
contract  with  the  United  States  Railroad  Administration, 
but  it  too  was  finally  taken  under  direct  Federal  control 
and  operated  by  the  government  as  the  railroads  were 
operated. 

On  December  24,  191 9,  President  Wilson  issued  a  proc- 
lamation announcing  that  he  would  relinquish  control  of 
the  express  business  on  March  1,  1920,  at  the  same  time 
that  Federal  control  of  railroads  would  terminate.  It  be- 
came necessary  to  decide  whether  the  American  Railway 
Express  Company  should  be  continued,  or  whether  its 
business  should  again  be  distributed  among  the  companies 
which  had  originally  formed  the  consolidation.  There  was 
a  feeling  among  government  officials  and  among  the  offi- 
cers of  the  American  Railway  Express  Company  that  the 
consolidation  should  be  permitted  to  continue.  The  Trans- 
portation Act  left  the  matter  to  the  Interstate  Commerce 
Commission,  providing  that  the  Commission  might,  if  it 
thought  it  to  be  in  the  public  interest,  authorize  the  contin- 
uation of  the  consolidation,  if  application  for  the  Com- 
mission's approval  should  be  made  within  thirty  days  after 
the  passage  of  the  Transportation  Act.  Formal  applica- 
tion for  approval  of  the  consolidation  by  the  Commission 


206  RAILROAD  TRANSPORTATION 

was  filed  on  March  22,  1920.  A  number  of  State  authori- 
ties and  several  shippers'  organizations  opposed  the  consol- 
idation because  they  believed  that  the  elimination  of  com- 
petition would  injure  the  efficiency  of  the  express  service. 
Notwithstanding  this  objection  the  Commission  gave  its 
formal  approval  of  the  consolidation  in  a  decision  handed 
down  on  December  7,  1920. 

The  American  Railway  Express  Company  was  not  des- 
tined however  to  maintain  a  complete  monopoly  of  the 
express  transportation  business.  Early  in  1921  a  new  ex- 
press company,  the  Southeastern,  was  organized  to  conduct 
an  express  business  over  the  lines  of  the  Southern  Railway 
and  the  Mobile  and  Ohio  Railroad.  The  new  company 
operates  over  some  ten  thousand  miles  of  line.  It  is  not 
unlikely  that  additional  express  companies  will  be  organ- 
ized in  the  course  of  time,  unless  the  railroad  corporations 
adopt  a  policy  of  conducting  the  express  business  them- 
selves. 

The  internal  organization  of  the  American  Railway  Ex- 
press Company  is  not  a  complicated  one.  The  executive 
officers  have  titles  and  functions  similar  to  those  of  any 
other  large  private  business  corporation.  The  company 
has  a  board  of  directors,  a  president,  a  secretary,  and  a 
treasurer,  and  vice  presidents  in  charge  of  certain  depart- 
ments. One  vice  president  has  charge  of  the  company's 
finances,  another  is  in  charge  of  the  accounting  organiza- 
tion, and  a  third  heads  the  traffic  department  which  solic- 
its business,  publishes  rates  and  settles  claims.  The  country 
is  divided  into  five  operating  regions  or  departments,  with 
a  vice  president  having  general  supervision  of  the  business 
in  each  region.  Under  the  operating  vice  presidents  are  a 
number  of  general  superintendents  having  direct  super- 
vision of  the  service  in  particular  territories,  and  usually 
the  territory  of  each  general  superintendent  is  subdivided, 
and  each  subdivision  placed  under  the  immediate  control 


EXPRESS  SERVICE  OF  RAILROADS       207 

of  a  division  superintendent.  Responsible  to  the  division 
superintendent  are  the  station  agents,  who  receive  and  de- 
liver goods,  the  messengers,  who  have  charge  of  the  articles 
while  in  transit,  and  route  agents  who  regularly  inspect 
the  work  of  the  various  routes  and  agencies.  At  large 
agencies  a  number  of  clerks,  drivers  and  express  handlers 
are  employed  under  the  direction  of  the  agent. 

The  person  delivering  goods  to  an  express  company  for 
shipment  receives  a  receipt  corresponding  to  the  bill  of 
lading  issued  by  a  railroad  for  freight  shipments.  The 
receipt  contains  the  name  and  address  of  the  consignor 
and  of  the  consignee,  a  description  of  the  goods,  their 
declared  value,  the  express  charges,  a  statement  of  the 
contract  between  the  express  company  and  the  shipper,  and 
the  signature  of  the  agent.  The  receipt  is  non-negotiable. 
On  every  shipment,  except  money,  the  agent  of  the  express 
company  is  required  to  affix  a  label  indicating  whether  the 
express  charges  are  prepaid  or  are  to  be  collected  from  the 
consignee.  A  "prepaid"  label  is  printed  on  yellow,  and  a 
"collect"  label  on  white  paper.  The  goods  shipped  are  ac- 
companied by  a  waybill  similar  to  a  freight  waybill,  stating 
the  weight  and  value  of  the  package,  the  consignor  and 
consignee,  destination,  charges,  prepaid  or  unpaid,  and  ship- 
ping directions.  A  "waybill"  label  made  in  duplicate  with 
the  waybill,  and  containing  the  same  information  with  the 
exception  of  the  shipping  directions,  is  attached  to  each 
shipment.  Different  colored  waybills  are  used  for  prepaid, 
collect,  and  C.  O.  D.  shipments.  The  express  messengers 
turn  the  shipments  over  to  the  station  agents,  who  make 
delivery  to  the  consignee.  Usually  the  consignee  receipts 
for  the  shipment  by  signing  the  delivery  book  of  the  driver 
of  the  express  wagon,  but  some  companies  use  a  delivery 
receipt,  made  out  with  the  waybill  and  the  waybill  label 
and  sent  to  the  receiving  agent  with  the  waybill. 

The   American  Railway  Express   Company  has   definite 


208  RAILROAD  TRANSPORTATION 

contracts  with  the  railroad  companies  over  whose  lines  the 
express  service  is  conducted.  With  virtually  all  roads  it 
has  a  uniform  contract,  the  financial  provisions  of  which 
were  approved  by  the  Interstate  Commerce  Commission  in 
December,  1920.  The  railroad  agrees  to  furnish  facilities 
for  transportation  of  express  traffic  and  messengers  on 
passenger,  mail,  or  express  trains  and  to  provide  terminal 
space  for  handling  the  express  traffic,  the  express  company 
agreeing  to  pay  a  reasonable  compensation  in  case  it  is 
necessary  to  construct  a  special  station.  The  railroad  also 
provides  free  transportation  for  the  personal  property  and 
supplies  of  the  express  company  and  for  its  officers  and 
employees.  The  express  company  assumes  all  risk  of  loss 
or  damage  to  property  or  persons,  and  carries  free  of 
charge  for  the  railway  all  money  or  packages  pertaining 
to  the  business  of  the  railway. 

The  railroads  of  the  country  are  divided  into  four  groups 
— an  eastern,  a  southern,  a  western,  and  a  Mountain-Pa- 
cific— and  the  express  company  makes  a  financial  settle- 
ment with  the  railroads  of  each  group  as  a  whole.  From 
its  gross  receipts  the  express  company  first  pays  operating 
charges,  rentals  and  other  expenses,  and  deducts  an  amount 
sufficient  to  pay  the  interest  and  discount  on  funds  borrowed 
and  expended  for  additional  property  and  equipment.  The 
sums  thus  borrowed,  as  long  as  they  remain  unpaid,  are 
not  considered  as  a  part  of  the  capital  value  of  the  express 
company's  property.  The  sum  remaining  after  these  de- 
ductions are  made  is  termed  "income  for  division."  From 
this  is  first  set  aside  2,y2  per  cent  for  the  express  company. 
The  remaining  balance,  designated  as  "net  income  for  divi- 
sion," is  distributed  among  the  railroads  in  each  group, 
each  separate  railroad  company  receiving  an  amount  in  the 
proportion  that  the  gross  express  transportation  revenue 
earned  as  its  line  bears  to  the  revenues  earned  by  all  the 
lines  in  the  group. 


Section  of  Expbkss  Map  Showing  Method  of  Numbering  Blocks 


THE  LIBRARY 

OF  THE 

UNIVERSITY  Or  ILUKCiS 


EXPRESS  SERVICE  OF  RAILROADS       209 

Should  the  2y2  per  cent  of  the  "income  for  division"  re- 
served by  the  express  company  exceed  6  per  cent  of  the 
capital  value  of  the  express  company's  property,  the  ex- 
press company  agrees  to  divide  the  excess  "profit"  equally 
with  the  railroads.  The  one-half  accruing  to  the  express 
company  is  to  be  accumulated  until  it  reaches  a  sum  equal 
to  10  per  cent  of  the  capital  value  of  the  company's  prop- 
erty, after  which  the  excess  profit  is  to  be  divided  one- 
fourth  to  the  express  company  and  three-fourths  to  the 
railroads.  The  railroads'  share  of  the  profit  is  distributed 
first  among  the  groups  and  then  among  the  individual  car- 
riers on  a  stipulated  basis. 

The  system  of  rates  and  classification  used  by  the  ex- 
press companies  on  traffic  shipped  in  interstate  commerce 
at  the  present  time  was  promulgated  by  the  Interstate  Com- 
merce Commission,  July  24,  191 3,  and  went  into  effect 
February  1,  1914.  Previous  to  1906  the  express  companies 
were  not  subject  to  regulation  by  the  Interstate  Commerce 
Commission  and  they  based  their  rates  largely  on  the 
monopoly  powers  secured  by  exclusive  contracts  with  rail- 
road companies.  Not  being  required  to  file  tariffs  with  the 
Interstate  Commerce  Commission,  the  companies  ordinarily 
made  out  a  schedule  of  rates  applicable  to  shipments  from 
each  station.  A  great  deal  of  discrimination  prevailed,  the 
long  and  short  haul  basis  for  making  rates  being  generally 
ignored,  and  much  higher  rates  charged  at  exclusive  offices 
than  were  charged  at  competitive  points. 

By  the  Hepburn  Act  of  1906  the  express  companies 
were  required  to  file  their  tariffs  with  the  Interstate  Com- 
merce Commission,  and  it  became  necessary  for  them  to 
simplify  their  rate  system.  The  system  devised,  however, 
was  not  satisfactory  to  the  patrons  of  the  express  com- 
panies, and  many  complaints  were  filed  with  the  Inter- 
state Commerce  Commission  of  unreasonably  high  and  dis- 
criminatory rates  and  of  other  abuses,  such  as  double  collec- 


210  RAILROAD  TRANSPORTATION 

tion  of  charges,  indirect  routing,  and  delays  in  the  settle- 
ment of  loss  and  damage  claims.  Moreover,  the  classi- 
fications and  the  tariffs  of  the  express  companies  were 
expressed  in  such  a  confusing  manner  that  the  public  was 
compelled  to  depend  almost  entirely  upon  the  express  agents 
for  information  concerning  rates,  and  large  shippers  were 
enabled  to  secure  lower  rates  by  taking  advantage  of  ob- 
scure rules  concerning  which  most  of  the  public  remained 
uninformed.  The  almost  universal  dissatisfaction  led  to  the 
promulgation  of  an  entirely  new  system  of  rates,  as  above 
mentioned.  The  actual  rates  which  the  express  companies 
were  authorized  to  charge  have  been  increased  several 
times  since  1913;  but  the  system  of  rate  making  remains 
the  same. 

The  express  classification  authorized  by  the  Interstate 
Commerce  Commission  at  the  time  the  rate  system  was 
revised  provided  that  all  commodities  not  specifically  pro- 
vided for  in  the  classification  sheet,  except  food  products 
and  beverages,  and  some  articles  taking  third-class  rates, 
should  be  charged  the  first-class  rate.  The  classification 
was  therefore  in  reality  a  "classification  exception  sheet." 
Some  articles  are  rated  higher  than  first  class  if  the  risk 
of  transportation  is  great,  or  if  they  are  light  and  bulky, 
and  are  charged  a  multiple  of  the  first-class  rate. 

The  new  rates  devised  for  express  shipments  consisted 
of  three  factors,  first  a  flat  allowance  of  20  cents  per  ship- 
ment for  collection  and  delivery  service ;  second,  a  rail 
terminal  allowance  of  25  cents  per  100  pounds,  except  in 
the  region  of  the  Rocky  Mountains  where  it  was  55  cents ; 
and  third,  a  charge  for  rail  transportation  varying  with  the 
weight  of  the  shipment  and  the  distance  carried.  Rates  on 
second-class  shipments  were  not  to  exceed  75  per  cent 
of  the  first-class  rates,  except  that  the  minimum  charge  was 
to  be  the  charge  for  10  pounds  unless  the  first-class  pack- 
age rate  for  the  actual  weight  was  less,  in  which  case  the 


EXPRESS   SERVICE  OF  RAILROADS       211 

first-class  rate  was  to  apply.  The  third-class  rate  which 
was  applicable  to  only  a  small  number  of  commodities 
was  one  cent  for  each  two  ounces  or  fraction  thereof, 
minimum  charge,  15  cents.  It  was  provided  that  the  order 
of  the  commission  was  not  to  apply  to  any  commodity 
rates  which  the  express  companies  might  make. 

To  establish  the  new  scheme  of  rates  the  Interstate  Com- 
merce Commission  first  divided  the  map  of  the  United 
States  into  950  "blocks,"  formed  by  the  intersection  of  the 
parallels  of  latitude  with  the  meridians  of  longitude.  The 
blocks  are  numbered  so  that  each  number  indicates  the 
tier  (horizontal)  and  the  row  (vertical)  in  which  the  par- 
ticular block  is  located.  Beginning  with  the  first  tier  the 
block  farthest  west  is  No.  101  ;  directly  under  that  is 
No.  201 ;  under  that  No.  301,  and  so  on.  The  other  blocks 
are  numbered  consecutively  from  west  to  east.  By  this 
method  the  tier  of  the  block  is  indicated  by  the  "hundreds" 
figure  of  its  number,  and  the  row  by  the  "tens  and  units" 
figures.  For  example,  Block  No.  748  is  in  the  7th  tier 
and  the  48th  row.  Each  of  the  blocks  is  subdivided  into  16 
squares  or  "sub-blocks"  designated  by  the  letters  of  the 
alphabet  from  "A"  to  "Q,"  the  letter  "J"  being  omitted. 
The  map  is  again  divided  into  five  zones,  each  zone  pos- 
sessing in  a  general  way  a  certain  diversity  in  the  volume 
and  character  of  express  traffic.  A  general  basis  of  rates 
was  adopted  by  the  commission  for  each  zone,  the  minimum 
rate  per  100  pounds  in  Zone  I,  which  corresponds  closely 
with  the  Official  freight  classification  territory,  being  60 
cents,  and  in  Zone  IV,  which  includes  the  Rocky  Moun- 
tain States,  $1.05. 

After  the  country  was  thus  divided  into  blocks  a  scheme 
was  devised  for  indicating  in  a  simple  manner  the  express 
rate  between  any  two  express  offices  in  the  country.  This 
was  done  by  compiling  a  Directory  of  Express  Stations, 
two  Rate  Tables,  and  a  Rate  Scale.     The  Directory  of  Ex- 


212  RAILROAD  TRANSPORTATION 

press  Stations  gives  a  complete  list  of  all  express  stations 
in  the  United  States,  showing  in  which  block  and  sub- 
block  each  station  is  located,  and  indicating  the  express 
company  or  companies  operating  at  each  place.  Rate  Table 
I  contains  for  each  block,  in  order,  the  number  of  the  rate 
scale  applying  to  shipments  made  to  all  blocks  which  are 
not  adjacent ;  and  Rate  Table  II  shows  for  each  block 
the  number  of  the  rate  scale  applicable  between  any  of  its 
sub-blocks  and  between  its  sub-blocks  and  those  of  ad- 
jacent blocks.  The  Rate  Scale  contains  294  numbered 
schedules  of  rates,  each  scale  indicating  an  amount  to  be 
charged  on  first-class  merchandise  express  packages  varying 
in  weight  from  1  to  100  pounds.  The  rate  on  all  shipments 
weighing  more  than  100  pounds  is  obtained  by  charging 
the  per  pound  rate  of  a  100-pound  shipment. 

The  express  agent  at  each  station  is  provided  by  his 
company  with  a  directory,  a  classification,  the  rate  tables 
for  the  block  in  which  his  station  is  located,  and  a  rate 
scale  showing  the  charges  on  both  first-class  and  second- 
class  shipments  weighing  from  1  to  100  pounds.  To  as- 
certain the  rate  on  a  package  the  agent  first  finds  in  the 
directory  the  block  location  of  the  office  to  which  shipment 
is  desired ;  then  if  the  block  is  not  adjacent  to  his  own, 
he  consults  Rate  Table  I  and  finds  the  number  of  the  rate 
scale  applying;  after  which  he  turns  to  the  rate  scale  and 
finds  under  the  number  the  charge  to  be  made  if  the  weight 
of  the  package  is  less  than  100  pounds.  If  the  package 
weighs  more  the  charge  may  be  ascertained  by  a  simple 
computation.  For  example,  to  secure  the  express  rate  from 
Harrisburg,  Pa.,  to  Peoria,  111.,  on  a  package  of  first-class 
traffic  weighing  150  pounds,  the  Harrisburg  agent  finds  in 
the  directory  that  Peoria  is  in  Block  No.  936 ;  Rate  Table 
I  for  Block  949,  in  which  Harrisburg  is  located,  shows 
that  the  rate  scale  applying  to  shipments  to  Block  No.  936  is 
No.  36;  Rate  Scale  No.  36  gives  $3.19  as  the  charge  on 


EXPRESS  SERVICE  OF  RAILROADS       213 

packages  weighing  ioo  pounds.  At  the  per  pound  rate  of 
such  a  shipment  the  amount  to  be  charged  on  a  package  of 
150  pounds  is  $4.79. 

The  rates  given  in  the  rate  scales  apply  only  to  property 
declared  by  the  shipper  to  be  of  a  value  of  $50  or  less,  for 
any  shipment  weighing  100  pounds  or  less,  or  not  exceed- 
ing in  value  50  cents  a  pound  actual  weight  for  any  ship- 
ment in  excess  of  100  pounds.  When  the  declared  value 
exceeds  these  amounts  the  rates  are  10  cents  greater  for 
each  $100  or  fraction  thereof  in  excess  of  the  values  above 
given.  The  Interstate  Commerce  Act  authorizes  the  Inter- 
state Commerce  Commission  to  permit  carriers  to  establish 
rates  dependent  upon  declared  or  released  values  for  all 
kinds  of  property  except  ordinary  live  stock,  and  the  addi- 
tional charges  imposed  by  the  express  company  for  articles 
of  exceptional  value  have  been  sanctioned  by  the  Com- 
mission. 

Since  1906,  when  the  express  companies  were  made  sub- 
ject to  the  provisions  of  the  Interstate  Commerce  law,  the 
Interstate  Commerce  Commission  has  been  able  to  collect 
and  issue  certain  statistics  concerning  the  business  of  the 
express  companies.  Annual  reports  of  the  earnings,  ex- 
penses and  financial  condition  of  the  express  companies 
have  been  made  since  1908,  but  in  only  one  of  these  reports, 
the  first,  has  there  been  given  a  statement  of  the  volume  of 
express  traffic.  The  gross  receipts  from  the  express  trans- 
portation business  in  1918  amounted  to  $254,000,000,  of 
which  about  50  per  cent  was  paid  to  the  railroads.  The 
operating  expenses  were  so  high  in  that  year  that  the  busi- 
ness suffered  a  deficit  of  some  $16,000,000. 

Previous  to  January  1,  191 3,  the  express  companies  had 
a  virtual  monopoly  of  the  merchandise  traffic  on  passenger 
trains  in  the  United  States.  The  limit  of  weight  of  one 
package  of  merchandise  that  could  be  sent  through  the  mails 
was   four  pounds  and  the  rate  was  one  cent  per  ounce. 


214  RAILROAD  TRANSPORTATION 

Third-class  mail  matter  (printed  matter  other  than  period- 
icals) could  be  mailed  for  one-half  cent  per  ounce,  the 
same  limitation  of  weight  applying,  except  on  single  books. 
With  the  beginning  of  the  year  1913,  a  parcel  post  system 
was  put  in  operation,  the  weight  limit  of  fourth-class  matter 
being  placed  at  11  pounds,  since  increased  to  70  pounds 
for  packages  not  to  be  carried  for  more  than  300  miles  and 
to  50  pounds  for  packages  to  be  carried  farther. 

It  was  thought  that  the  new  parcel  post  service  would 
to  a  great  extent  replace  the  service  given  by  the  express 
companies,  and  while  it  has  met  with  great  favor  and  has 
absorbed  much  of  the  traffic  formerly  handled  by  the  ex- 
press companies,  the  express  service  still  possesses  certain 
advantages  which  commend  it  to  shippers.  Among  these 
advantages  may  be  mentioned  the  following:  the  express 
company  handles  fragile  articles  and  small  packages  in 
safety  trunks,  while  the  post  office  handles  such  shipments 
in  sacks;  the  express  company  gives  a  receipt  for  each 
shipment,  the  post  office  gives  a  receipt  only  for  insured 
parcels;  the  express  company  assumes  liability  for  all  loss 
or  damage,  while  the  Government  insures  only  against  total 
loss;  the  express  company  carries  bullion,  money  and  val- 
uables, assuming  full  risk;  the  express  company  accepts 
packages  of  any  weight,  making  special  rates  for  carload 
shipments.  Moreover,  the  express  company,  at  larger  sta- 
tions, will  not  only  deliver  packages  to  the  consignee,  but 
will  collect  them  from  the  shipper,  while  parcel  post  ship- 
ments are  only  delivered.  In  the  matter  of  rates  if  the 
insurance  charges  on  parcel  post  matter  are  taken  into  con- 
sideration the  rates  on  long-distance  traffic  are  in  most  cases 
higher  than  the  present  rates  on  express  traffic.  The  chief 
advantage  possessed  by  the  parcel  post  is  the  cheaper  rates 
on  short-distance  traffic  and,  in  places  where  the  express 
company  affords  a  collection  service,  even  this  advantage 
is  in  a  measure  offset.     In  rural  communities  where  the 


EXPRESS  SERVICE  OF  RAILROADS       215 

post  office  conducts  a  free  delivery  service  extending  sev- 
eral miles  from  central  stations,  the  parcel  post  service  has 
the  most  favoring  conditions.  Then,  too,  the  cheap  rates  on 
uninsured  packages  attract  a  large  amount  of  traffic,  inas- 
much as  the  percentage  of  losses  is  comparatively  small, 
and  many  shippers  are  willing  to  assume  the  risk. 

By  a  reduction  of  rates  and  a  few  changes  in  its  service 
it  might  be  possible  for  the  post  office  to  secure  a  very 
large  portion  of  the  traffic  now  handled  by  the  express 
companies.  Such  a  transfer  would  not  greatly  affect  the 
service  of  hauling  the  cars  now  performed  by  the  railroads; 
in  fact  a  combination  of  the  present  mail  and  express 
service  might  possibly  result  in  the  reduction  of  the  number 
of  cars  which  it  would  be  necessary  to  run.  In  case  the 
Government  modified  its  service  so  as  to  secure  a  large  por- 
tion of  the  small  package  shipments  now  handled  by  ex- 
press it  is  not  unlikely  that  the  railroad  companies  would 
find  it  advantageous  to  extend  their  freight  service  so  as 
to  include  all  the  express  traffic  which  would  not  enter 
the  mails. 

The  express  business  was  organized  as  a  separate  service 
by  companies  distinct  from  the  railroad  corporations  at  a 
time  when  the  railway  systems  were  small  and  when  their 
facilities  for  handling  traffic  expeditiously  over  short  or 
long  distances  were  undeveloped ;  but  those  conditions  have 
ceased  to  exist  now  that  the  railroads  of  the  country  have 
been  grouped  into  large  systems.  There  are  single  systems 
of  roads  comprising  almost  as  many  miles  of  line  as  were 
formerly  covered  by  the  service  of  the  large  express  com- 
panies, and  it  has  for  some  time  been  largely  a  matter  of 
expediency  with  many  of  the  railroad  companies  whether 
they  shall  themselves  handle  the  express  business  done  over 
their  lines  or  whether  they  shall  delegate  the  service  to  some 
other  corporation.  With  an  extension  of  the  parcel  post 
service,  the  assumption  of  the  express  business  by  the  rail- 


216  RAILROAD  TRANSPORTATION 

road  companies  themselves  might  seem  a  logical  conse- 
quence of  the  present  conditions  of  railway  organization 
and  management. 

The  express  service  as  now  performed  has  the  merits 
of  safety,  speed,  and  concentration  of  responsibility,  but  a 
strong  objection  to  the  present  organization  is  that  two 
companies  are  engaged  in  doing  a  work  that  could  be  per- 
formed by  one — that  the  express  company  is  a  wheel  within 
a  wheel — and  that  the  delegation  of  the  express  traffic 
has  caused  the  railroads  to  be  less  zealous  in  extending 
their  fast  freight  service,  and  in  developing  a  speedy  local 
freighi.  service  which  would  be  of  especial  advantage  in 
certain  lines  of  production  and  trade.  The  improvement 
in  the  fast  freight  facilities  of  railroads  in  recent  years 
has  shown  that  it  would  not  be  impossible  to  create  a  more 
highly  specialized  service  which  would  perform  in  an  ade- 
quate and  satisfactory  manner  a  large  portion  of  the  work 
now  carried  on  by  the  express  service. 


REFERENCES 

U.  S.  Census,  1880.  Agencies  of  Transportation  in  the  United 
States,  594-610,  855-856. 

Ibid.,  1890.  Report  on  Transportation  Business  in  the  United 
States,  part  ii,  491-498. 

Stimson,  A.  L.  History  of  the  Express  Companies,  and  the 
Origin  of  American  Railroads,  489-532  (2d  ed.  1858). 

Report  of  Massachusetts  Railway  Commission,  69-75  C1^0)- 

Testimony  Taken  by  the  Commission  to  Investigate  the  Postal 
Service.  Part  i,  29-62,  statement  of  John  J.  Valentine, 
president  of  Wells,  Fargo  and  Company;  pp.  512-532,  state- 
ment of  Henry  S.  Julier,  general  manager  American  Ex- 
press Company.  Part  ii,  687-696,  statement  of  Levi  C. 
Wier,  president  Adams  Express  Company  (Sen.  Doc.  No. 
89,  56  Cong.,  2  sess.,  1900). 


EXPRESS  SERVICE  OF  RAILROADS         217 

Dabney,  W.  D.  The  Public  Regulation  of  Railways,  chap,  ix 
(1889). 

Johnson  and  Huebner.  Railroad  Traffic  and  Rates,  II,  chaps, 
xxxviii  to  xliii   (1911). 

Chandler,  W.  H.     The  Express  Service  and  Rates  (1914). 

Interstate  Commerce  Commission  Reports,  XXIV,  380; 
XXVIII,  131.  [These  two  reports  contain  the  orders  of 
the  commission  for  the  revision  of  express  rates,  and  give 
the  new  system.] 

Ibid.,  XXXV,  3.  [This  report  contains  the  order  for  the  in- 
crease in  rates  of  July  14,  1915.] 

Interstate  Commerce  Commission.  Statistics  of  Express  Com- 
panies (annual  since  1909). 


CHAPTER  XIV 

THE  MAIL  SERVICE  OF  THE  RAILROADS 

The  mail  service  increases  with  the  progress  of  civilization,  218. 
Classification  of  mail  matter,  219.  The  parcel  post  rate  system, 
220.  General  statistics  of  mail  traffic,  223.  Mail  transportation, 
222,.  The  railway  post  office,  225.  The  services  performed  by 
railroad  companies  in  transporting  the  mails,  226.  Railway 
mail  pay,  227.  The  postal  deficit  and  its  cause,  232.  Refer- 
ences, 234. 

The  transportation  of  the  mails,  like  the  freight,  pas- 
senger, and  express  services,  is  a  distinct  and  separately- 
organized  department  of  the  activities  of  the  railroads.  The 
details  of  the  organization  of  this  department  differ  in  sev- 
eral particulars  from  those  of  other  branches  of  the  rail- 
road service,  because  the  mail  traffic  has  several  unique 
characteristics. 

In  studying  the  railway  mail  service  we  are  considering 
only  a  part  of  the  general  postal  service  of  the  Government, 
but  the  part  under  consideration  occupies  a  central  and 
indispensable  place  in  the  entire  service,  and  a  clear  pres- 
entation of  the  chief  facts  regarding  the  railway  mail 
service  reveals  something  concerning  most  branches  of  the 
postal  service.  For  a  detailed  study  of  the  activities  of  the 
post  office  the  references  at  the  close  of  this  chapter  will 
be  of  assistance. 

The  volume  of  the  mail  traffic  is  growing  rapidly,  more 
than  proportionately  with  the  increase  in  population.  The 
more  highly  organized  business  methods  become  and  the 
wider  the  territory  reaches   over  which  men   extend  the 

218 


Section  of  Parcel  Post  Map  foe  Unit  No.  869 


THE  LIBRARY 

OF  THE 

UNIVERSITY  Of  ILLINOIS 


MAIL  SERVICE  OF  RAILROADS  219 

activities  of  their  business,  the  more  largely  the  mails  are 
used.  The  more  general  education  becomes,  the  more  time 
wage-earners  and  their  families  have  for  letter  writing  and 
for  reading,  and  the  more  surplus  income  they  have  for 
the  purchase  of  stamps  and  literature,  the  more  largely 
is  the  postal  service  employed.  The  growth  of  the  mail 
traffic  is  a  general  index  of  the  progress  of  civilization, 
and  as  the  great  bulk  of  mail  matter  is  transported  by  the 
railroads,  their  mail  business  is  an  equally  instructive  in- 
dex. 

Mail  matter  as  well  as  freight  is  classified,  but  different 
principles  govern  the  two  classifications.  Freight  is  classified 
with  reference  to  maximum  traffic  and  maximum  revenue, 
whereas  the  aim  of  the  Government  is  not  to  derive  a 
surplus  revenue  from  the  postal  service,  but  to  administer 
the  post  office  in  such  a  way  as  to  make  it  contribute  most 
largely  to  the  convenience  of  business  and  to  the  promotion 
of  public  intelligence.  If  total  receipts  equal  total  expendi- 
tures, the  Government  is  satisfied ;  and  in  order  to  make  the 
educational  value  of  the  mails  as  great  as  possible,  most 
printed  matter  is  carried  at  a  loss,  some  not  being  charged 
any  postage  whatever,  the  deficits  in  that  portion  of  the 
service  being  made  good  wholly  or  partially  from  the 
receipts  from  other  parts. 

The  four  classes  of  mail  matter  comprise:  First,  letters, 
post  cards,  all  written  matter,  and  all  sealed  packages,  the 
rate  being  two  cents  an  ounce  (one  cent  for  post  cards)  ; 
second,  newspapers,  magazines,  and  other  periodicals  issued 
at  intervals  not  exceeding  three  months.  The  rate  on  this 
class  of  mail  is  one  cent  for  four  ounces,  when  mailed  by 
the  general  public ;  when  mailed  by  the  publishers  a  zone 
rate  system  is  used.  Local  newspapers  circulate  free  of 
postage  within  the  county  of  publication,  an  exception  being 
made  of  the  circulation  in  cities  having  a  free-delivery  serv- 
ice.  Third,  miscellaneous  printed  matter  weighing  less  than 


220  RAILROAD  TRANSPORTATION 

four  pounds,  excluding  books,  the  rate  being  one  cent  for 
two  ounces.  Fourth,  parcel  post  matter,  made  up  of  all 
mailable  merchandise,  including  farm  and  factory  products, 
books,  and  miscellaneous  printed  matter  weighing  more  than 
four  pounds.  The  size  of  parcels  is  limited  to  84  inches 
combined  length  and  girth,  and  the  weight  to  70  pounds 
for  parcels  to  be  carried  for  a  distance  of  not  more  than 
150  miles  and  50  pounds  for  parcels  to  be  carried  farther. 
The  rate  on  parcels  weighing  four  ounces,  or  less,  except 
books,  seeds,  plants,  bulbs,  etc.,  is  one  cent  for  each  ounce, 
for  any  distance ;  on  parcels  weighing  eight  ounces  or  less 
containing  books,  seeds,  cuttings,  bulbs,  plants,  etc.,  one  cent 
for  each  two  ounces,  regardless  of  distance  ;  on  all  other  par- 
cels the  rate  varies  according  to  weight  and  distance.  The 
parcel  post  rate  system  is  explained  in  the  following  para- 
graph. Much  mail  of  all  classes  is  carried  free,  the  "frank- 
ing" privilege  being  granted  to  Congressmen  and  Govern- 
ment officials  for  all  official  business. 

In  devising  the  parcel  post  rate  system,  the  United  States 
and  Territories,  except  the  Philippine  Islands,  was  divided 
into  units  of  area  30  minutes  square,  each  unit  identical  with 
a  quarter  of  the  area  formed  by  the  intersecting  parallels  of 
latitude  and  meridians  of  longitude.  The  units  were  num- 
bered in  the  following  manner :  A  map  of  the  United  States 
including  a  strip  one-half  degree  wide,  north  of  the  49th 
parallel  of  north  latitude,  which  constitutes  the  northern 
boundary  of  the  western  part  of  the  United  States,  was 
divided  into  units  each  30  minutes  square.  In  the  strip 
just  north  of  the  49th  parallel,  the  unit  farthest  east  was 
designated  o,  the  next  50,  the  next  100,  and  so  on.  With 
these  as  initial  numbers  the  remaining  units  in  each  vertical 
row  were  numbered  consecutively  from  north  to  south. 
Each  unit  thus  has  a  number  greater  by  50  than  the  ad- 
joining unit  to  the  east ;  the  units  are  designated  by  larger 
numbers  as  one  proceeds  westward.    Each  unit  is  the  basis 


MAIL  SERVICE  OF  RAILROADS  221 

of  eight  postal  zones.  The  first  zone  comprises  all  units 
included  in  or  intersected  by  a  circle  with  a  radius  ex- 
tending 50  miles  from  the  center  of  whatever  unit  is  taken 
as  a  basis ;  the  outer  boundary  of  the  second  zone  is  a 
circle  of  150  miles  radius;  the  third,  300  miles;  the  fourth, 
600  miles;  the  fifth,  1,000  miles;  the  sixth,  1,400  miles;  the 
seventh,  1,800  miles;  and  the  eighth  includes  all  beyond 
1,800  miles.  Each  post  office  is  supplied  with  a  parcel  post 
map,  showing  all  the  units  and  the  zones  for  the  particular 
unit  in  which  the  post  office  is  situated,  and  with  a  parcel 
post  guide,  which  indicates  the  unit  location  of  every  post 
office  in  the  country.  By  consulting  the  guide  the  postal 
clerk  ascertains  the  unit  in  which  the  post  office  of  the 
addressee  of  a  parcel  is  located,  and  by  consulting  the  map 
he  finds  out  the  zone.  The  post  offices  in  the  larger  cities 
are  now  each  supplied  with  a  zone  key,  which  is  a  directory 
indicating  the  zone  location  of  all  other  post  offices.  A 
zone  key  makes  it  possible  to  dispense  with  the  guide  and 
the  map.  The  parcel  post  rate  system  is  very  simple.  For 
packages  intended  for  local  delivery  either  at  the  post  office 
or  by  carrier,  the  rate  is  five  cents  for  the  first  pound  and 
one  cent  for  each  additional  two  pounds  or  fraction  thereof. 
In  the  first  and  second  zones  the  rate  for  the  first  pound 
is  five  cents  and  in  the  succeeding  zones  in  order,  6,  7,  8, 
9,  11,  and  12  cents.  For  each  additional  pound  after  the 
first,  one  cent  is  charged  in  the  first  and  second  zone,  and 
in  each  succeeding  zone  in  order,  2,  4,  6,  8,  10,  and  12  cents. 
The  table  on  the  opposite  page  shows  the  various  parcel  post 
rates. 

When  the  parcel  post  was  first  established,  January  1, 
1913,  the  limit  of  weight  of  all  parcels  was  11  pounds,  the 
rates  were  somewhat  higher  than  at  present,  and  books 
were  not  included.  In  August  191 3  the  limit  of  weight 
was  increased  to  20  pounds  in  the  local,  first  and  second 
zones,  and  postage  rates  were  reduced  in  the  same  zones. 


Parcel  Post  Rates 


Zones 


Weight  in 
pounds 


Local 


ist 
Up 
to 
SO 


2d 

SO 
to 

ISO 


3d 
ISO 

to 
300 


4th 

300 

to 

600 


5th 

600 

to 


6th       7th 
1,000    1,400 


to 


to 


1,000    1,400    1,800 


8th 

Over 
1,800 


miles    miles    miles    miles    miles    miles    miles    miles 


1 loos  Jo.os 

2 06  .06 

3 06  .07 

4 07  .08 

5 07  .09 

6 08  .10 

7 08  .11 

8 09  .12 

9 09  .13 

10 10  .14 

U 10  .IS 

12 11  .16 

13 II  17 

14 12  .18 

IS 12  19 

l6 13  -20 

17 13  21 

l8 14  .22 

19 14  23 

20 IS  24 

21 IS  -25 

22 l6  .26 

23 i°  27 

24 17  28 

25 17  29 

26 18  .30 

27 18  .31 

28 19  .32 

29 19  33 

30 20  .34 

<}I 20  .35 

32 21  .36 

33 21  .37 

34 22  .38 

35 22  .39 

36 23  .40 

37 23  .41 

38 24  .42 

39 24  .43 

40 25  .44 

41 25  .45 

42 26  .46 

43 26  .47 

44 27  48 

45 27  .49 

46 28  .50 

47 28  .51 

48 29  .S2 

49 29  .53 

50 30  .54 

51 30  .55 

52 31  -56 

53 31  -57 

54 32  .58 

55 32  .59 

56 33  60 

57 33  61 

58 34  62 

59 34  63 

60 35  .64 

61 35  .65 

62 36  .66 

63 36  .67 

64 37  68 

65 37  .69 

66 38  .70 

67 38  .71 

68 39  .72 

69 39  .73 

70 40  .74 


$0.05 
.06 
.07 
.08 

09 
.10 
.  II 
.  12 

13 
•14 
.15 
.16 

17 
.18 

19 
.20 
.21 
.22 

•  23 
•24 

25 
.26 
.27 
.28 
.29 

■  30 
31 
32 
33 

■  34 
3S 
36 
37 

.38 

■  39 
.40 

■  41 
.42 

43 

•  44 

•  45 
.46 
■47 
.48 

•  49 

■  SO 

■  Si 

•  52 
S3 

•  54 
.55 

•  56 

■  57 
.58 
.59 
.60 
.61 
.62 

63 
.64 
.65 
.66 
.67 
.68 
.69 
.70 
.71 

•  72 

•  73 

•  74 


$0.06  $0 
.08 
.10 
.12 

■  14 
.16 
.18 
.20 

.22 
.24 
.26 
.28 

•  30 
32 

■  34 
.36 

•  38 
40 

•  42 

■  44 
.46 
.48 

SO 

•  52 

.54 
.56 
.58 
.60 
.62 
.64 

.66 
.68 

•  70 

•  72 

•  74 
.76 

■  78 
.80 
.82 
.84 
.86 
.88 

•  90 
.92 
.94 
.96 
.98 

1 .00 
1.02 
I.04 
I 
1 . 
1  . 


07  fo.08  I0.09  $0.11  I0.12 


11 

15 

19 

23 

27 

31 

35 

39 

43 

47 

51 

55 

59 

63 

67 

71 

75 

79 

83 

87 

91 

95 

99 

03 

07 

II 

15 

19 

23 

27 

31 

35 

39 

43 

47 

51 

55 

59 

63 

67 

71 

75 

79 

83 

87 

91 

95 

99 

03 


■  14 
.20 
.26 
32 
.38 
■44 
■50 
.56 
.62 
.68 

•74 
.80 
.86 
92 
.98 
.04 
.  10 
.16 
.22 
.28 
1.34 
1 .40 
46 
52 
58 
64 
70 
76 
82 
88 

94 
00 
2.06 
2. 12 
18 
24 
30 
36 
42 
48 
54 
60 
69 
72 
78 
84 
2.90 
2.96 
302 


.17 

.25 

33 

•  41 

•  49 
.57 
.65 

•  73 
.81 
.89 

97 

•  05 
13 

.21 

.29 

37 

■  45 
53 

.61 

.69 

77 

■  85 
93 

.01 

.09 

17 

•  25 
33 

•41 
49 
57 

•  65 
73 

.81 
89 
97 
05 
13 

21 
29 

37 
45 
53 
61 
69 
77 
85 
93 
01 


.21 

•  31 

•  41 

•  51 
.61 

71 
.81 

■  91 
.01 
.  11 
.21 

■  31 

■  41 
Si 

.61 

71 

.81 

91 

.01 

.  11 

.21 

31 

■  41 
51 

.61 

.71 

.81 

91 

.01 

.  11 

.21 

31 

41 

Si 


3.61 
371 
381 
3  91 
4.01 
4- II 
4.21 
4-31 
441 
4-51 
4.61 
471 
4.81 
491 
5  01 


•  24 
.36 
.48 
.60 

•  72 

:S 

1 .08 
1 .20 
132 
1.44 
1.56 
1.68 
1.80 
1.92 
2.04 
2.16 
2.28 
2.40 
2.52 
2.64 
2.76 
2.88 
300 
312 
3  24 
3.36 
3  48 
3.60 
372 

3  84 
396 
4-08 
420 
4-32 
4-44 

4  56 


68 
80 
92 
04 
16 
28 
40 
52 
64 
76 
88 


6.00 


06 
08 

10       The  local  rale  applied  to  parcels  mailed 
1 .  12  under  the  following  conditions: 
1. 14 

1 .  16       1.     At  any  post  office  for  local  delivery 
1 .  18  at  such  office. 
1 .20 

1.22       2.     At  any  city  letter  carrier  office,  or  at 
1 .  24  any  point  within  its  delivery  limits,  for 
1 .  26  delivery  by  carriers  from  that  office. 
1.28 

1.30  3.  At  any  post  office  from  which  a 
1.32  rural  route  starts,  for  delivery  on  such 
1.34  route,  or  when  mailed  at  any  point  on  a 
1 .  36  rural  route  for  delivery  at  any  other  point 
1.38  thereon,  or  at  the  office  from  which  the 
1 .  40  route  starts,  or  for  delivery  on  any  other 
1 .  42  rural  route  starting  from  the  same  office. 
1.44 


MAIL     SERVICE    OF    RAILROADS         223 

In  March,  1914,  books  and  catalogues  were  admitted  to 
the  parcel  post.  The  rates  and  weight  limits  indicated  in 
the  table  have  been  in  effect  since  March  15,  1918. 

A  parcel  post  package  may  be  insured  against  loss  in 
an  amount  equivalent  to  its  actual  value,  but  not  to  exceed 
$5,  on  payment  of  a  fee  of  3  cents ;  not  to  exceed  $25,  on 
payment  of  a  fee  of  5  cents ;  not  to  exceed  $50,  for  10  cents ; 
and  not  to  exceed  $100,  for  25  cents.  Receipts  are  issued  to 
the  senders  of  insured  packages.  The  sender  of  a  parcel 
post  package  may  have  the  price  of  the  article  collected 
from  the  addressee,  the  fee  being  10  cents  for  an  amount 
not  to  exceed  $50  and  25  cents  for  an  amount  not  to 
exceed  $100.  This  service  is  applicable  only  to  packages 
mailed  to  offices  where  postal  money  orders  are  issued. 

Accurate  statistics  of  the  amount  of  mail  matter  handled 
annually  by  the  Post  Office  Department  have  never  been 
collected,  though  estimates  have  been  made  from  time  to 
time.  In  191 7  it  was  estimated  that  the  total  mail  traffic 
on  the  railroads  amounted  to  826,090,715  ton-miles.  This 
represented  an  increase  of  more  than  50  per  cent  in  four 
years.  Since  the  beginning  of  the  parcel  post  system  the 
volume  of  the  mail  has  increased  greatly.  In  his  report  of 
1920  the  Postmaster  General  estimated  that  more  than 
2,250,000,000  parcels  had  been  received  during  the  fiscal 
year.  The  only  class  of  mail  about  which  accurate  statis- 
tics are  available  is  the  second-class  matter,  mailed  by  the 
publishers.  Of  this  class,  in  1920,  there  were  1,307,227,130 
pounds  at  the  pound  rates,  and  61,528,172  pounds  free  in 
county. 

The  Government  employs  railroads,  steamships,  stage- 
coaches, and  messengers  to  carry  the  mails,  but  probably 
90  per  cent  of  the  total  weight  of  mail  and  equipment  is 
transported  by  the  railways.  A  part  of  the  mail  trans- 
ported by  the  railroads  is  carried  in  closed  pouches  in 
baggage  cars.     In  the  fiscal  year  of  1920  the  closed-pouch 


224  RAILROAD  TRANSPORTATION 

railway  mail  service  had  an  aggregate  mileage  of  150,- 
124,721.  A  much  larger  amount  of  mail  was  carried  in  the 
"railway  post  offices"  or  cars  equipped  as  a  post  office. 
These  cars  are  in  charge  of  messengers  who  sort  the  mail 
as  it  is  received  and  place  in  separate  pouches  the  mail  for 
each  city,  and  if  the  city  is  a  large  one,  for  various  sections 
of  the  city.  Some  times  the  railway  post  offices  occupy  an 
entire  car  (some  trains  being  composed  only  of  mail  cars, 
post  office  and  storage),  and  sometimes  they  occupy  a  part 
of  a  car,  usually  the  baggage  car,  in  which  an  apartment  is 
fitted  up  as  a  post  office.  In  1920  a  total  of  61,497,173 
miles  of  service  by  full-sized  railway  post-office  cars  was 
authorized,  while  the  authorization  of  30-foot  and  15-foot 
apartment  post-office  car  service  amounted  to  220,644,985 
miles. 

The  Second  Assistant  Postmaster  General  estimates  that 
during  the  fiscal  year  19 19  the  railway  post-office  clerks 
made  14,962,066,979  distributions  and  redistributions  of 
pieces  of  first-class  mail.  In  addition  to  this  they  handled 
89,933,071  packages  and  cases  of  registered  mail. 

In  addition  to  the  railroads,  the  Post  Office  Department 
utilizes  steamboats,  electric  railways,  motor  trucks,  wagons 
and  airplanes  for  the  transportation  of  the  mail.  In  sev- 
eral parts  of  the  United  States,  but  particularly  in  the 
Western  States  and  in  Alaska,  there  are  a  number  of  "star 
routes,"  over  which  the  mails  are  carried  under  contract 
to  the  lowest  bidder  by  wagon,  on  horseback  or  by  motor 
car  service,  between  places  not  reached  by  railroads  or 
steamboats.  The  free  delivery  of  mail  in  rural  districts 
is  one  of  the  important  branches  of  the  mail  service.  In 
1920  there  were  43,445  rural  free  delivery  routes  in  opera- 
tion, covering  1.151,832  miles.  The  Air  Mail  Service  was 
inaugurated  in  May,  191 8,  between  Washington  and  New 
York.  In  1921  this  service  was  conducted  over  routes 
aggregating  some  4,000  miles.    Mail  was  transmitted  by  air- 


MAIL    SERVICE    OF    RAILROADS         225 

plane  from  New  York  to  San  Francisco  in  24  hours  less 
time  than  it  can  be  carried  by  rail. 

The  assorting  of  mail  while  in  transit  was  begun  in  this 
country  in  1862,  when  Mr.  William  A.  Davis,  who  was  then 
chief  clerk  in  the  mailing  department  of  the  post  office  at 
St.  Joseph,  Mo.,  fitted  up  the  first  railway  postal  cars.  These 
cars  were  run  on  the  Hannibal  and  St.  Joseph  Railroad,  and 
were  put  in  service  to  facilitate  the  prompt  forwarding  of 
the  overland  mails  westward  from  St.  Joseph,  an  important 
distributing  point  at  which  the  mails  were  then  transferred 
from  the  railroad  to  the  "overland  stages."  The  advantages 
of  having  the  mails  reach  the  distributing  point  assorted 
ready  to  be  forwarded  without  delay  to  their  several  desti- 
nations were  quickly  recognized,  and  the  traveling  post  office 
was  soon  established  on  the  principal  lines  of  railroad. 

In  1919  there  were  2,000  whole  cars  equipped  as  post 
offices  and  4,500  more  containing  postal  apartments.  In 
most  cases  these  postal  cars  are  run  singly  as  a  part  of  a 
passenger  train,  but  on  routes  where  the  mails  are  heaviest 
"fast  mail-trains"  are  run,  composed  entirely  of  postal  cars. 
The  mail  service  over  a  particular  route  is  generally  an  ad- 
junct of  the  passenger  service  until  a  weight  of  50,000 
pounds  is  reached  for  a  single  mail,  and  when  that  weight 
is  exceeded  fast  mail  trains  are  put  into  service. 

The  postal  cars  now  being  put  in  service  are  models  of  the 
car-builder's  art.  They  are  60  feet  in  length,  built  entirely 
of  steel,  mounted  on  the  best  of  trucks,  and  are  lighted  and 
heated  by  the  most  modern  appliances.  The  Government 
specifies  the  kind  of  cars  to  be  used,  and  every  effort  is  made 
to  insure  the  safety  of  the  mails  and  the  messengers  and 
to  facilitate  the  accurate  and  rapid  assortment  of  the  mails. 
By  a  law  enacted  August  24,  191 2,  it  was  provided  that 
after  June,  1913,  not  less  than  25  per  cent  of  the  railway 
post-office  cars  of  any  railroad  company,  not  constructed 
entirely  of  steel  or  with  steel  underframe,  should  be  annu- 


226  RAILROAD  TRANSPORTATION 

ally  replaced  with  cars  constructed  of  steel.  In  these  trav- 
eling post  offices  much  of  the  work  is  performed  that  was 
formerly  done  at  the  offices  in  the  distributing  centers.  A 
change  in  the  organization  of  the  railway  mail  service  was 
made  in  191 1  by  the  establishment  of  terminal  railway  post 
offices  at  the  railway  stations  of  the  large  cities.  By  han- 
dling at  these  post  offices  a  part  of  the  mail  formerly  sorted 
in  the  post-office  cars  a  large  reduction  was  made  in  the 
car  space  and  the  number  of  railway  postal  clerks  needed. 
The  terminal  post  office  makes  possible  the  use  of  labor-sav- 
ing devices  which  could  not  be  installed  in  cars,  and  also 
brings  about  the  elimination  of  much  of  the  rehandling  of 
mail  matter. 

The  services  performed  by  the  railroad  companies  in  the 
transportation  of  the  mails  consist  chiefly  of  providing  and 
equipping  the  postal  cars  and  hauling  those  and  the  other 
cars  used  for  carrying  the  mails  over  the  routes  designated 
by  the  Government.  Many  people  suppose  that  these  are 
the  only  services  rendered  by  the  companies;  but  there  are 
several  other  duties  performed  by  the  railroads  in  connection 
with  the  carriage  of  the  mails.  The  employees  of  the  rail- 
road company  are  required  to  load  the  mail  into  the  cars, 
and  when  the  mails  are  not  in  charge  of  a  messenger  they 
are  unloaded  by  the  company's  agent.  The  transfer  of  the 
mails  from  car  to  car  and  from  station  to  station,  when  that 
service  is  necessary,  is  made  by  the  company.  Except  in 
the  large  cities,  where  the  carting  of  the  mails  is  done  by 
the  post  office,  the  railroad  company  carries  the  mails  be- 
tween the  station  and  the  office.  At  way  stations  and  in- 
termediate post  offices  the  companies  are  not  obliged  to  carry 
the  mails  more  than  80  rods,  but  at  terminal  stations  there 
is  no  limit  to  the  distance.  In  large  cities  the  postal  cars 
must  be  placed  in  the  central  station  at  a  convenient  place 
for  loading,  and  at  stations  not  having  terminal  post  offices 
they  must  remain  there  several  hours  before  the  departure 


MAIL    SERVICE    OF    RAILROADS         227 

of  the  train  by  which  they  are  taken,  in  order  that  the  clerks 
may  have  the  assortment  of  the  mail  well  under  way  when 
the  train  pulls  out.  It  is  of  course  a  matter  of  considerable 
expense  to  the  railroad  companies  to  provide  space  for  the 
mail  cars  in  their  usually  crowded  passenger  terminals.  The 
labor  and  terminal  expenses  incurred  by  the  railroad  com- 
panies in  the  mail  service  are  said  by  the  companies  to  be 
appreciably  greater  than  for  the  express  business. 

The  Government  requires  that  postal  cars  be  attached  to 
fast  trains,  and  the  mails  must  be  taken  by  such  trains  as 
the  Government  may  select.  The  companies  are  not  per- 
mitted to  leave  any  mail  behind ;  whatever  the  demand  for 
space  may  be,  the  demand  must  be  met,  and,  as  has  already 
been  stated,  the  Government  stipulates  the  kind  of  cars  to 
be  used  for  the  postal  service,  requires  the  cars  to  be  sta- 
tioned at  the  terminals  where  they  can  be  readily  loaded  and 
unloaded ;  stipulates  that  companies  shall  attend  to  the  han- 
dling of  the  mail  immediately  on  the  arrival  of  the  trains, 
and  under  certain  conditions  that  they  shall  carry  the  mails 
between  the  stations  and  the  post  offices.  These  strict  regu- 
lations are  necessary  to  secure  the  speedy  and  reliable  mail 
service  enjoyed  by  the  public ;  but  they  make  the  transpor- 
tation of  the  mails  an  expensive  service,  for  the  perform- 
ance of  which  the  Government  makes  large  outlays. 

The  Government  paid  out  more  than  $105,000,000  in  the 
fiscal  year  1920  for  the  transportation  of  the  domestic  and 
foreign  mails,  exclusive  of  expenditures  for  rural  free 
delivery  service.  This  was  somewhat  less  than  one-fourth 
of  the  total  receipts  of  the  Post  Office  Department  which 
for  that  year  amounted  to  $437,150,212.  The  railroads  re- 
ceived $70,714,391  for  carrying  the  mails  and  maintaining 
the  post-office  car  service. 

The  method  of  paying  the  railroads  for  the  transporta- 
tion of  the  mails  was  for  many  years  a  cause  of  much  con- 
troversy between  the  carriers  and  the  Post  Office  Depart- 


228  RAILROAD  TRANSPORTATION 

ment.  In  1838  Congress  enacted  a  law  declaring  that  all 
the  railroads  in  the  United  States  at  that  time,  and  all  that 
might  be  constructed  thereafter,  should  be  post  routes.  The 
Postmaster  General  was  authorized  to  make  the  necessary 
financial  arrangements  for  the  transportation  of  the  mails 
by  rail,  subject  to  certain  arbitrary  limitations  which  the 
law  imposed,  and  which  were  modified  from  time  to  time 
during  subsequent  years.  As  time  passed  the  compensa- 
tion of  the  railroads  for  their  service  failed  to  grow  as 
rapidly  as  the  mail  traffic  increased.  After  the  introduction 
of  post-office  cars  the  railroad  companies  protested  vigor- 
ously against  the  inadequate  rates  of  pay  allowed  by  Con- 
gress. In  1873  a  law  was  enacted  providing  for  a  new 
method  of  payment.  Under  this  act  the  carriers  received 
a  certain  sum  per  mile  per  year  according  to  the  daily 
weight  of  mail  carried.  The  rate  per  pound  was  lowest 
upon  those  routes  where  the  mail  traffic  was  heaviest.  The 
railroads  also  received  additional  compensation  for  pro- 
viding and  hauling  full-sized  post-office  cars,  though  they 
received  no  additional  pay  for  apartment  cars.  The  aver- 
age daily  weight  of  mail  carried  over  a  route  was  ascer- 
tained by  weighing  the  mails  every  four  years  for  a  period 
of  90  successive  working  days.  The  country  was  divided 
into  four  "contract  sections,"  and  the  mail  weighed  in  one 
section  each  year.  The  average  daily  weight  for  the  weigh- 
ing period  was  taken  as  the  average  upon  which  payment 
was  computed  for  the  following  four  years.  The  rates 
of  pay  established  in  1873  were  reduced  ten  per  cent  in 
1876,  and  two  years  later  were  again  reduced  five  per  cent. 
In  1907  a  law  was  passed  providing  for  another  five  per 
cent  reduction  on  those  routes  having  an  average  daily  mail 
traffic  of  more  than  5,000  pounds. 

In  1907  the  Postmaster  General  issued  a  "divisor  order" 
which  effected  a  reduction  of  about  $5,000,000  in  the 
annual  payments  to  the  railroads   for  mail  transportation. 


MAIL  SERVICE  OF  RAILROADS  229 

This  order  required  that  the  total  number  of  days  in  the 
weighing  period,  including  Sundays,  should  be  used  as  a 
divisor  in  ascertaining  the  average  daily  weight  of  the 
mails,  instead  of  the  number  of  successive  working  days. 
In  191 1  the  Postmaster  General  brought  about  another 
diminution  of  railway  mail  pay  by  issuing  an  order  requir- 
ing that  certain  periodicals  be  carried  by  freight  instead  of 
in  the  mails.  All  the  Postmasters  General  were  desirous 
of  making  a  favorable  financial  showing  for  the  Post  Office 
Department,  and  each  one  seemed  to  select  the  railroads 
as  the  chief  object  of  his  efforts  toward  economy.  When 
in  1913  the  volume  of  mail  matter  was  greatly  increased  by 
the  inauguration  of  the  parcel  post  service,  Congress  enacted 
a  law  authorizing  the  Postmaster  General  to  grant  to  the 
railroads  upon  which  the  mail  was  not  weighed  in  191 3  an 
increase  in  mail  pay  not  to  exceed  five  per  cent.  This  small 
increase  was  not  enough  to  compensate  the  railroads,  at 
the  established  rates,  for  the  additional  traffic  they  were 
forced  to  carry. 

The  railroad  companies  protested  against  the  successive 
reductions  in  the  rates  of  pay  for  carrying  the  mails.  On 
the  other  hand  the  Post  Office  Department  claimed  that 
the  rates  of  railway  mail  pay  were  too  high.  The  statistics 
of  the  mail  service  unquestionably  supported  the  conten- 
tions of  the  carriers.  While  the  total  revenues  of  the  Post 
Office  were  advancing  from  $152,826,585  in  1905  to  $287,- 
248,165  in  191 5,  an  increase  of  88  per  cent,  the  amount 
paid  to  the  railroads  advanced  from  $45,040,564  to  $59,- 
576,288,  an  increase  of  only  32  per  cent.  The  method  of 
compensating  the  railroads  was  obviously  defective.  The 
infrequent  weighing  of  the  mails  forced  the  railroads  to 
carry  a  much  heavier  traffic  than  they  were  actually  paid 
for  hauling.  It  was  unjust  to  require  the  roads  to  provide 
apartment  cars  and  to  transport  the  mail  between  post- 
offices  and  railway  stations  for  nothing. 


230  RAILROAD  TRANSPORTATION 

In  1912  a  Joint  Congressional  Committee  was  appointed, 
with  Senator  Jonathan  Bourne,  Jr.,  as  chairman,  to  inves- 
tigate the  question  of  railway  mail  pay.  After  an  exhaust- 
ive investigation  the  committee  made  a  report  two  years 
later  in  which  it  declared  that  the  railroads  were  entitled 
to  more  liberal  compensation,  but  recommended  a  complete 
change  in  the  method  of  payment.  The  committee  favored 
the  use  of  space  as  a  basis  of  payment,  the  railroads  to 
receive  compensation  according  to  the  amount  of  car  space 
devoted  to  hauling  the  mails.  A  bill  embodying  the  rec- 
ommendations of  the  committee  was  introduced  in  the  Sen- 
ate, but  neither  this  bill,  nor  another  introduced  in  the 
House  at  about  the  same  time,  providing  also  for  payment 
on  a  space  basis,  but  at  much  lower  rates  than  those  car- 
ried in  the  Senate  bill,  was  passed. 

The  controversy  between  the  Post  Office  Department  and 
the  railroads  continued.  Finally  in  July,  1916,  Congress 
took  action,  passing  a  bill  providing  that  the  Interstate  Com- 
merce Commission  should  fix  and  determine  from  time  to 
time  fair  and  reasonable  rates  and  compensation  for  the 
transportation  of  the  mails  for  the  railroads,  prescribing 
the  method  or  methods,  by  weight,  space,  or  both  or  other- 
wise, for  ascertaining  such  rates  and  compensation.  The 
law  provided  further  that  pending  action  by  the  Commis- 
sion the  existing  rates  of  pay  should  continue  in  effect  on 
all  routes,  except  those  which  the  Postmaster  General  might 
select  to  place  upon  a  space  system  of  pay,  at  certain  rates 
named  in  the  law.  It  was  stipulated  that  if  the  rates  of 
pay  established  by  the  Commission  should  be  higher  than 
those  named  in  the  law  the  Postmaster  General  should  read- 
just the  compensation  of  the  carriers  on  the  routes  which 
he  should  select  for  experimentation  with  the  space  system 
of  payment. 

The   Postmaster   General,  instead   of   selecting  a  limited 
number  of  routes  for  testing  the  space  method  of  payment, 


MAIL     SERVICE     OF    RAILROADS         231 

announced  that  he  would  place  virtually  all  the  railroad 
mail  routes  of  the  country  upon  the  space  basis,  except  the 
closed-pouch  routes.  The  railroads  objected  strongly  to 
this  procedure.  The  Commission  upheld  the  Postmaster 
General,  and  the  railroads  were  placed  upon  the  space  basis 
of  pay  on  November  I,  1916.  The  carriers  and  the  Post 
Office  Department  then  agreed  upon  a  weighing  and  statis- 
tical period,  lasting  from  March  27  to  April  30,  1917,  dur- 
ing which  information  was  collected  concerning  the  bag- 
gage, express,  mail  and  passenger  service,  in  order  to 
ascertain  the  revenues  and  the  expenses  of  each  service. 
This  information  was  carefully  tabulated  and  submitted  to 
the  Interstate  Commerce  Commission,  together  with  the 
arguments  of  the  carriers  and  the  Post  Office  Department 
as  to  what  the  methods  and  the  rates  of  pay  should  be. 
The  Post  Office  Department  favored  the  continuation  of 
the  space  method,  while  the  railroads  advocated  a  return 
to  the  weight  basis,  with  a  more  frequent  weighing  of  the 
mails  and  higher  rates  of  pay. 

The  decision  of  the  Commission  was  rendered  December 
23,  1919.  It  adopted  the  space  method  of  payment,  and 
declared  fair  and  reasonable  rates  of  payment  as  from 
November  1,  1916,  to  January  1,  1918,  to  be: 

Cents 

For  each  mile  of  service  by  a  6o-ft.   R.    P.     O.     car 27 

For  each  mile  of  service  by  a  30-ft.  apartment  car 15 

For  each  mile  of  service  by  a   15-ft.  apartment  car 10 

For  each  mile  of  service  by  a  60-ft.  storage     car 28 

For  each  mile  of  service  by  a  30-ft.  storage     space 15 

For  each  mile  of  service  by  a   1 5-ft.   storage     space 8 

For  each  mile  of  service  by  a  37-ft.   storage     space 4V2 

For  each  mile  of  service  by  a  33-ft.   storage     space 2V2 

For  each  mile  of  service  by  a   15-ft.  closed-pouch    space 10 

For  each  mile  of  service  by  a     7-ft.  closed-pouch    space 5 

For  each  mile  of  service  by  a     3-ft.  closed-pouch    space 3 

On  separately  operated  railroads  not  exceeding  ioo  miles 
in  length  and  not  less  than  50  miles  in  length  the  Commis- 
sion allowed  rates  20  per  cent  in  excess  of  those  given 
above,  while  on  roads  less  than  50  miles  in  length  it  allowed 
50  per  cent  higher  rates.     On  roads  which  had  received 


232  RAILROAD  TRANSPORTATION 

land  grants  from  the  Federal  Government,  the  rates  were, 
as  before,  80  per  cent  of  the  rates  on  other  roads.  The 
Commission  decided  that  on  and  after  January  I,  1918,  the 
rates  should  be  25  per  cent  higher  than  the  rates  prescribed 
for  November  1,  1916.  For  the  performance  of  "side, 
terminal  or  transfer  service"  the  Commission  ordered  that 
the  carriers  be  given  a  separate  compensation,  to  be  based 
upon  the  actual  cost  of  performing  the  service. 

The  Postmaster  General,  asserting  that  the  rates  desig- 
nated by  the  Commission  were  too  high,  asked  for  a  rehear- 
ing of  the  case  and  a  revised  finding,  and  a  number  of 
railroads  petitioned  that  the  case  be  reopened  and  a  modi- 
fication made  in  the  order  of  the  Commission.  All  peti- 
tions for  a  rehearing  were  denied  by  the  Commission,  and 
the  rates  which  it  prescribed  went  into  effect.  Since  the 
rates  were  considerably  higher  than  the  tentative  rates  es- 
tablished in  the  law  of  1916,  it  was  necessary  for  the  Post 
Office  Department  to  readjust  the  compensation  of  the  car- 
riers for  the  period  beginning  November  1,  1916. 

The  revenues  of  the  Post  Office  Department  have  usu- 
ally been  less  than  the  expenditures.  One  of  the  chief 
causes  of  postal  deficits  has  been  the  cheap  rates  of  postage 
charged  on  the  large  volume  of  second-class  matter.  For 
many  years  previous  to  July  1,  1918,  the  rate  on  second- 
class  matter  mailed  by  publishers  was  one  cent  a  pound. 
The  revenues  derived  from  second-class  mail  were  less  than 
one-fifth  the  cost  of  handling  it.  It  was  repeatedly  urged 
by  various  heads  of  the  Post  Office  Department  that  the 
postage  rates  on  second-class  matter  be  increased.  In 
March,  191 1,  Congress  authorized  the  appointment  of  a 
Commission  on  Second-Class  Mail  Matter,  which  was  di- 
rected to  investigate  the  cost  of  handling  second-class  mail 
and  make  recommendations  concerning  rates.  This  com- 
mission, of  which  Justice  Charles  E.  Hughes  was  chairman, 
came  to  the  conclusion  that  the  cost  of  handling  second- 


MAIL     SERVICE    OF    RAILROADS 


233 


class  mail  at  that  time  was  5^2  cents  a  pound,  and  recom- 
mended that  the  rate  to  publishers  be  increased  to  two 
cents  a  pound.  This  recommendation  was  not  followed  by 
Congress,  but  in  the  War  Revenue  Act  of  1918  a  section 
was  included  providing  for  a  substantial  increase  in  pub- 
lishers' rates  on  second-class  matter.  To  all  publications 
of  which  more  than  5  per  cent  of  the  contents  consisted 
of  advertising  matter,  zone  rates  were  applied  on  the  por- 
tion devoted  to  advertising,  while  uniform  flat  rates  were 
retained  on  the  non-advertising  matter.  The  rates  pre- 
scribed for  non-advertising  matter  were  1*4  cents  a  pound 
from  July  I,  1918,  to  July  1,  1919,  and  V/z  cents  a  pound 
thereafter.  The  rates  prescribed  on  the  portion  of  pub- 
lications devoted  to  advertising  were  as  follows : 

Rates  per  pound  on  portions  of  publications  devoted   to  advertising 


Parcel  post 
zone 

July  1,  1918 

to 
July  1,  1919 

July  1,  1919 

to 
July  1,  1920 

July  1,  1920 

to 
July  1,  1921 

On  and  after 
July  1,  1921 

First 

$.01^ 
.01M 

•  OiH 
.02 

.02^ 
.02^ 

•  03 

•  03M 

J.OlJ^ 

•OlH 

.02 

.03 

.03H 

.04 

■  OS 

.05.VS 

•  OI?i 
•02>6 

.04 

■  05^ 
.07 

■  0734 

$.02 

Second 

.02 

Third 

.03 

Fourth 

•  OS 

Fifth 

.06 

Sixth 

.07 

Seventh 

■  09 

Eighth 

.  10 

The  new  rates  met  with  vigorous  opposition  on  the  part 
of  publishers  of  newspapers,  magazines  and  other  periodi- 
cals. There  can  be  but  little  doubt  that  there  was  ample 
justification  for  an  increase  in  second-class  postage  rates, 
but  there  is  considerable  question  whether  it  was  advisable 
to  apply  zone  rates.  If  the  zone  rates  should  lead  to  re- 
gional variations  in  the  subscription  rates  to  newspapers 
and  periodicals  the  result  will  probably  be  a  restriction  to  a 
limited  territory  of  the  circulation  of  many  periodicals 
which  have  had  a  national  circulation.  Such  a  result  would 
tend  to   encourage  provincialism,   making  it  more  difficult 


234  RAILROAD  TRANSPORTATION 

for  the  people  of  one  section  of  the  country  to  understand 
the  point  of  view  of  people  living  in  other  sections.  The 
postal  service  should  be  an  agency  for  the  promotion  of 
national  unity  and  not  an  instrument  for  the  encouragement 
of  sectionalism. 

REFERENCES 

Annual  Report  of  the  Postmaster  General.  [The  reports  of 
the  assistant  postmasters  general  contain  a  detailed  account 
of  the  workings  of  the  different  branches  of  the  mail 
service.] 

Tunell,  G.  G.  Railway  Mail  Service  (1901.)  [A  volume 
containing  much  information,  especially  regarding  the  pay- 
ments received  by  the  railroads  for  carrying  the  mails.] 

.      Railway    Mail   Service:    A    Historical    Sketch.      [A 

pamphlet  of  24  pages  published  by  R.  R.  Donnelley  and 
Sons,  Chicago,   1902.] 

History  of  the  Raihvay  Mail  Service.  (Exec.  Doc.  No.  40, 
48  Cong.,  2  sess.,  1885.) 

Testimony  Taken  by  the  Commission  to  Investigate  the  Postal 
Service.  Three  volumes,  parts  i  and  ii  dealing  with  "Rail- 
way Mail  Pay,"  and  part  iii  with  "Second-Class  Mail  Mat- 
ter," "Pneumatic  Tube  Service,"  etc.  Part  ii  contains  a 
most  instructive  "Special  Report  on  Railway  Mail  Pay," 
by  Prof.  Henry  C.  Adams,  former  statistician  to  the  In- 
terstate Commerce  Commission.  (Sen.  Doc.  No.  89,  56 
Cong.,  2  sess.,  1900.) 

Report  of  the  Joint  Committee  on  Postage  on  Second-Class  Mail 
Matter  and  Compensation  for  the  Transportation  of  Mail. 
(Bourne  Committee;  House  Doc.  No.  1 155,  63  Cong.,  2 
sess.,   1914.) 

Report  of  the  Commission  on  Second-Class  Mail  Matter* 
(Hughes  Commission;  Washington,  1912.) 

Raihvay  Mail  Pay.  56,  I.  C.  C,  1.  [Decision  of  the  Interstate 
Commerce  Commission  on  rates  and  method  of  railway  mail 
pay.] 


CHAPTER   XV 

THE  ORGANIZATION  OF  THE  SERVICE 

The  corporate  organization  of  a  railroad  company,  235.  The  secre- 
tary's department  and  law  department,  236.  The  treasurer's 
department,  237.  The  accounting  department,  237.  The  oper- 
ating department  and  its  subdivisions,  238.  The  traffic  depart- 
ment, 241.  Other  departments,  241.  Organization  of  the  Penn- 
sylvania Railroad  Company  and  the  Illinois  Central  Railroad 
Company,  242.    References,  249. 

A  railroad  company  is  a  large  corporation  with  complex 
activities  carried  on  over  wide  areas  by  an  army  of  em- 
ployees sometimes  numbering  tens  of  thousands.  To  per- 
form its  services  with  precision,  to  maintain  authority,  en- 
force responsibility,  and  insure  financial  honesty  throughout 
all  grades  of  officials  and  employees,  and  thus  to  conduct  its 
services  with  benefit  to  the  public  and  profit  to  itself,  the  cor- 
poration requires  a  detailed  and  highly  specialized  organiza- 
tion of  maximum  efficiency.  There  must  be  an  unbroken  line 
of  responsibility  from  the  lowest  subordinate  to  the  president, 
and  the  organization  by  which  this  is  accomplished  must  have 
flexibility  enough  to  permit  of  improvements  in  the  service 
and  the  adoption  of  new  technical  and  financial  methods. 

The  railroad  company  in  common  with  other  corporations 
has  in  its  organization  departments  and  officials  for  the  man- 
agement of  its  financial  and  legal  affairs.  The  stockholders 
composing  the  company  choose  directors  to  serve  as  a  gov- 
erning body,  and  the  directors  select  a  president,  secretary, 
treasurer,  comptroller,  and  a  legal  counselor.  Within  this 
general  corporate  organization  there  is  also  built  up  a  special- 

235 


236  RAILROAD   TRANSPORTATION 

ized  organization  to  accomplish  the  work  which  the  company 
exists  to  perform — the  safe  and  speedy  transportation  of 
persons  and  things. 

The  special  transportation  organization  is  concerned  with 
four  general  duties.  One  is  to  provide  and  maintain  in 
condition  for  use  a  roadway;  another  is  to  obtain,  keep  in 
order,  and  operate  vehicles  of  such  number  and  variety  as 
the  traffic  may  require ;  the  third  is  to  furnish  facilities  that 
will  enable  passengers  and  shippers  to  use  the  vehicles  and 
roadbed ;  and  the  fourth  is  to  arrange  the  financial  and  busi- 
ness relations  of  the  carrier  with  its  patrons  in  such  a  way 
as  to  promote  the  interests  of  both  parties. 

The  president  of  the  railroad  supervises  and  controls  all 
branches  of  the  service,  and  under  his  immediate  direction 
there  is,  corresponding  to  each  of  these  several  kinds  of  cor- 
porate and  specialized  activities,  a  department  of  the  rail- 
road company's  organization.  Two  departments  are  con- 
cerned strictly  with  the  affairs  of  the  company  as  a  cor- 
poration, the  secretary's  office  and  the  law  department.  The 
secretary's  department  has  charge  of  the  company's  records, 
and  of  a  great  volume  of  correspondence  carried  on  within 
the  corporation,  and  with  outside  organizations  and  indi- 
viduals. The  secretary  keeps  minutes  of  the  meetings  of 
the  board  of  directors,  notifies  the  stockholders  of  regular 
and  special  meetings  and  has  custody  of  all  leases  and  con- 
tracts authorized  by  the  board  of  directors.  Under  the  sec- 
retary are  a  transfer  clerk,  who  has  charge  of  transfers  of 
stock  and  of  the  books  showing  its  ownership,  and  a  regis- 
trar of  stock,  whose  duty  it  is  properly  to  register  certificates 
of  stock  as  they  are  issued.  At  the  head  of  the  legal  depart- 
ment is  the  general  counsel,  who  with  the  solicitors  under 
his  direction  has  charge  of  the  legal  business  of  the  company 
— the  preparation  and  execution  of  contracts  affecting  the 
business  activities  of  the  corporation,  and  the  direction  of  all 
litigation  in  which  the  company  becomes  involved. 


THE  ORGANIZATION  OF  THE  SERVICE    237 

The  treasury  department  is  concerned  with  the  financial 
affairs  of  the  general  corporation,  and  is  the  fiscal  agent 
of  the  special  organization  by  which  the  transportation  serv- 
ice is  performed.  It  has  nothing  to  do  with  operating  the 
transportation  machine,  its  duties  being  connected  solely 
with  the  receipts  and  disbursements  resulting  from  con- 
ducting the  transportation  business.  This  highly  important 
department  is  usually  under  the  supervision  of  one  of  the 
vice  presidents  of  the  company,  who  is  assisted  by  the  treas- 
urer and  the  cashier.  The  duties  of  the  treasurer  are  those 
ordinarily  pertaining  to  that  office  in  all  business  organiza- 
tions. He  must  account  to  the  corporation  for  all  its  income 
and  for  all  money  paid  out,  his  chief  duty  being  to  see  that 
none  but  properly  authorized  payments  are  made  from  the 
funds  intrusted  to  his  care.  A  registrar  of  bonds,  under 
the  direction  of  the  treasurer,  has  charge  of  the  transfer  and 
registration  of  the  registered  bonds  issued  by  the  company. 

The  accounting  department  also  is  usually  under  the  su- 
pervision of  one  of  the  vice  presidents  of  the  company,  the 
leading  subordinate  official  being  the  comptroller,  who  has 
in  charge  the  immediate  direction  of  the  work  of  the  depart- 
ment. The  comptroller  and  the  auditors  under  him  are 
the  bookkeepers  of  the  corporation,  charged  with  the  duty 
of  keeping  a  detailed  record  of  all  the  receipts  from  freight, 
passenger,  mail,  and  express  services  and  from  other  sources, 
and  a  record  of  all  expenditures  for  equipment,  supplies  and 
labor,  and  of  such  disbursements  as  interest  and  divi- 
dends. The  comptroller  has  in  his  office  a  general  set  of 
books  containing  a  complete  record  of  all  the  business  trans- 
actions of  the  railroad ;  he  informs  the  president  at  stated 
intervals  of  the  earnings  and  expenses  of  the  company, 
compares  regularly  the  accounts  of  the  treasurer  with  his 
own  accounts,  and  directs  the  inspection  of  the  accounts 
of  all  officers  and  agents  intrusted  with  the  handling  or 
care  of  the  money  of  the  company.     Another  very  impor- 


238  RAILROAD  TRANSPORTATION 

tant  duty  of  the  comptroller  is  to  verify  and  approve  for 
payment  all  vouchers,  pay  rolls,  and  other  evidences  of  in- 
debtedness. The  comptroller's  approval  must  be  given  be- 
fore the  treasurer  can  make  any  payment  of  money.  In 
the  comptroller's  office  also  elaborate  statistical  compila- 
tions are  made  for  the  information  of  officials  in  charge 
of  the  different  departments  of  the  railroad,  and  for  the 
reports  published  by  the  National  and  State  governments. 
The  financial  and  traffic  data  furnished  by  the  treasurer  and 
comptroller,  and  the  facts  regarding  car  and  train  move- 
ments given  by  the  car  accountant's  office  in  the  operating 
department,  supply  most  of  the  material  used  by  the  presi . 
dent  and  directors  in  preparing  their  annual  reports  to  the 
stockholders  composing  the  company. 

The  part  of  the  railroad  organization  which  is  directly 
and  solely  concerned  with  transportation  is  divided  into  the 
operating  and  traffic  departments,  each  of  which  is  large, 
and  for  the  purposes  of  efficient  administration  is  necessar- 
ily subdivided  into  several  distinct  branches.  The  operat- 
ing department  is  the  most  comprehensive  of  all.  It  pro- 
vides, maintains  and  operates  all  the  physical  equipment 
used  in  transporting  passenger  and  freight  traffic,  and  col- 
lects from  the  patrons  of  the  road  the  charges  for  the  serv- 
ice, turning  the  money  so  collected  over  to  the  treasury  de- 
partment. In  doing  this  the  operating  department  per- 
forms three  general  duties :  it  provides  and  maintains  the 
roadway  and  all  the  structures  pertaining  to  the  line ;  it  sup- 
plies and  maintains  the  locomotives  and  cars ;  it  runs  the 
trains  and  conducts  the  service  at  passenger  and  freight 
stations.  Each  of  these  three  duties  is  made  a  special 
branch  of  the  service. 

The  operating  department  as  a  whole  is  under  the  super- 
vision of  a  vice  president,  though  the  official  in  immediate 
control  is  the  general  manager,  who  is  the  most  responsible 
and  usually  the  hardest  worked  subordinate  officer  in  the 


THE  ORGANIZATION  OF  THE  SERVICE    230 

organization.  Sometimes  the  same  individual  holds  both 
the  office  of  vice  president  and  that  of  general  manager. 

The  first  of  the  three  main  divisions  of  the  operating 
department  is  the  roadway  department,  which  constructs 
and  maintains  all  the  fixed  physical  property  connected  with 
the  road — the  track,  bridges,  buildings,  pumping-machinery, 
and  signal  apparatus.  This  engineering  work  is  done  un- 
der the  supervision  of  a  chief  engineer  who  establishes  the 
standards  according  to  which  the  work  must  be  done.  Sub- 
ordinate to  the  chief  engineer  are  engineers  in  charge  of 
maintenance  of  way,  maintenance  of  bridges  and  buildings, 
and  maintenance  of  signals.  Each  of  these  engineers  has 
the  necessary  force  of  assistants  and  workmen. 

The  branch  of  the  operating  department  in  charge  of  the 
construction  and  maintenance  of  locomotives  and  cars  is 
usually  called  the  machinery  department.  Some  companies 
buy  all  new  equipment,  and,  in  their  case,  the  machinery 
branch  of  the  service  is  busied  only  with  repairs  and  main- 
tenance, but  many  of  the  large  railroad  corporations  build 
at  least  a  part  of  the  locomotives  and  cars  used  on  their 
lines.  The  repairing  and  constructing  of  locomotives  is  in 
charge  of  a  general  superintendent  or  chief  engineer  of 
motive  power,  assisted  by  a  master  machinist,  a  master  car 
builder,  and  the  requisite  foremen  and  subordinates. 

The  other  main  division  of  the  operating  branch  of  the 
organization  is  the  transportation  department,  which  op- 
erates the  equipment  provided  by  the  other  two  divisions 
and  performs  the  actual  work  of  moving  persons  and 
freight.  In  general  charge  of  this  department  is  the  gen- 
eral superintendent  of  transportation,  who  has  supervision 
of  all  station,  train  and  yard  service  and  of  the  distribution 
and  use  of  locomotives  and  cars.  It  is  his  duty  to  establish 
and  enforce  rules  which  will  secure  the  prompt,  safe  and 
economical  handling  of  traffic.  Under  his  direction  are  a 
superintendent   of    freight   transportation    and   a    superin- 


240  RAILROAD  TRANSPORTATION 

tendent  of  passenger  transportation  who  oversee  the  de- 
tails of  the  service,  keep  a  record  of  the  movement  of  all 
cars  and  locomotives  on  the  line,  and  keep  a  record  of  the 
amounts  due  to  or  from  other  companies  for  the  use  of 
interchanged  equipment.  The  services  of  the  transportation 
department  as  a  whole  are  performed  by  two  sets  of  em- 
ployees, those  composing  the  station  forces  and  those  op- 
erating the  trains  or  the  train  crews.  Each  of  these  forces 
of  men  has  its  own  organization  in  charge  of  a  chief  respon- 
sible to  the  general  manager.  The  station  forces,  though 
directly  responsible  to  the  officials  of  the  operating  depart- 
ment for  the  execution  of  their  work,  must  comply  with 
the  instructions  issued  by  the  traffic,  treasury,  and  ac- 
counting departments  with  regard  to  the  billing  of  freight, 
the  sale  of  tickets,  and  the  accounting  for  money  received. 
On  a  large  railroad  it  is  manifestly  impossiljle5«for  the 
general  officers  of  the  operating  department  tc<v2xercise 
immediate  control  over  the  many  activities  of  the  service, 
and  consequently  a  territorial  division  of  the  work  is'made. 
A  large  system  is  divided  into  a  number  of  grand  divisions, 
and  each  of  these  is  subdivided  into  a  number  of  divisions. 
The  "division"  is  the  unit  of  operation.  For  the  execu- 
tion of  the  details  of  the  operating  work  there  have  been 
worked  out  two  different  modes  of  organization  known 
respectively  as  the  divisional  and  the  departmental  types. 
The  divisional  type  is  based  on  a  territorial  separation  of 
the  operating  work  as  a  whole,  a  single  official,  the  division 
superintendent,  having  charge  of  all  three  branches  of  oper- 
ation on  a  division ;  while  under  the  departmental  type  of 
organization  the  work  of  each  branch  of  operation  is  divided 
territorially,  a  separate  official,  responsible  only  to  the  head 
of  his  particular  department,  having  charge  of  each  branch 
of  the  operating  work  on  a  division.  With  the  departmental 
type  of  organization  there  is  no  official  below  the  general 
manager  having  control  over  all  three  parts  of  the  work 


THE  ORGANIZATION  OF  THE  SERVICE    241 

of  operation ;  under  the  divisional  type  the  division  super- 
intendent bears  the  same  relation  to  the  division  that  the 
general  manager  does  to  the  entire  road.  In  the  United 
States  the  operating  departments  of  nearly  all  the  large  rail- 
ways are  organized  on  the  divisional  plan,  the  New  York 
Central  system  being  the  only  noteworthy  exception.  In 
England,  on  the  contrary,  the  departmental  type  of  organi- 
zation is  general. 

The  relations  of  the  carrier  and  its  patrons  are  adjusted 
by  the  traffic  department,  which  solicits  business,  classifies 
the  traffic,  determines  charges,  settles  as  far  as  possible 
the  claims  of  passengers  and  shippers  for  lost  baggage  and 
freight,  and  in  general  concerns  itself  with  increasing  the 
traffic  and  earnings  of  the  company.  It  is  the  business  of 
the  operating  department  to  conduct  the  transportation 
service  economically,  expeditiously,  and  safely ;  it  is  the 
object  of  the  traffic  department  to  secure  the  maximum 
passenger  and  freight  business  at  remunerative  rates.  One 
of  the  vice  presidents  of  the  company  usually  has  super- 
vision of  this  department,  the  work  however  being  under 
the  immediate  direction  of  a  freight  traffic  manager  and 
a  passenger  traffic  manage*,  wrr»  are  assisted  by  a  general 
freight  agent  and  a  general  passenger  agent,  whose  duties 
are  indicated  by  the  title  of  their  positions.  Under  the 
general  passenger  agent  are  the  division  passenger,  ticket, 
and  baggage  agents,  and  undofc-.the  general  freight  agent 
are  the  division  freight  agents  and  the  managers  of  the  fast 
freight  lines.  Sometimes  the  freight  claim  agent  is  subordi- 
nate to  the  general  freight  *agent,  and  sometimes  is  co- 
ordinate with  that  officer.  "Some  companies  have  a  chief 
claim  agent  subordinate  only  to  the  traffic  manager  and 
those  above  him.  The  general  passenger  agent  usually  has 
charge  of  the  mail  and  express  services. 

A  large  railroad  requires  a  great  variety  of  supplies,  and 
for  the  purchase  and  distribution  of  these  supplies  it  has 


242 


RAILROAD  TRANSPORTATION 


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RAILROAD  TRANSPORTATION 


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THE  ORGANIZATION  OF  THE  SERVICE      247 

been  found  best  to  organize  a  distinct  purchasing  depart- 
ment, usually  directly  subordinate  to  a  vice  president  of 
the  company,  and  hence  coordinate  with  the  other  depart- 
ments of  the  service.  The  purchasing  agent  is  at  the  head 
of  the  department,  and  subordinate  to  him  are  the  store- 
keepers, who  distribute  the  supplies  upon  the  presentation 
of  properly  authorized  requisitions.  Formerly  it  was  cus- 
tomary for  each  department  to  purchase  its  own  supplies, 
but  the  plan  of  having  all  purchases  made  by  one  officer 
is  more  economical,  and  has  been  generally  adopted. 

Every  railroad  company  is  the  owner  of  a  large  amount 
of  real  estate,  the  purchases  and  transfers  of  which  are 
in  charge  of  a  real  estate  agent  and  a  chief  conveyancer, 
subordinate  either  to  the  president  or  to  a  vice  president  of 
the  company.  Some  of  the  western  railroads  received  large 
grants  of  public  land,  the  sale  of  which  is  put  in  charge  of 
a  special  department. 

The  business  of  insuring  the  buildings  of  the  company 
against  losses  from  fire,  whether  by  the  plan  of  company  in- 
surance or  by  means  of  fire  insurance  companies,  is  some- 
times, although  not  often,  in  charge  of  an  insurance  depart- 
ment, with  a  superintendent  at  the  head. 

Many  railroad  corporations  have  relief  departments  to 
provide  aid  for  disabled  or  sick  employees.  With  some 
companies  the  relief  consists  only  in  maintaining  hospitals, 
while  others  have  fully  organized  relief  departments,  to 
which  the  employees  of  the  company  are  expected  to  be- 
long and  from  which  the  members  receive  financial  aid  in 
case  of  sickness  or  accident.  The  family  or  heir  is  paid  a 
stipulated  benefit  upon  the  death  of  a  member.  These  de- 
partments are  supported  mainly  by  the  employees,  but  in 
part  by  the  company,  which  bears  the  expenses  and  as- 
sumes the  risks  of  administration. 

The  organization  of  a  modern  railroad  corporation  seems 
complicated  and  detailed,  but  the  main  branches  and  sub- 


248 


RAILROAD  TRANSPORTATION 


ORGANIZATION   OF  THE  NEW  JERSEY  DIVISION  OF  THE 
PENNSYLVANIA  RAILROAD 


O 


w 

w 

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o 


Supt.  of  motive  power 


Principal  asst.  eng'r 


Superintendent  of 
Manhattan 
Division 


Asst.  eng'r  of  motive  power 
Asst.  eng'r  of  floating 

equipment 
Master  mechanic  and  asst. 

(division  shops  at  Trenton) 


Master  mechanic 

Division  operator 

Trainmaster 

Road  foreman  of  engines 

Division  engineer 


Supt.  of  New  York 
division 


Assistant  Superintendent 
Master  mechanic 


Division  operator. 


Trainmasters 


Road  foreman  of  engines . 


f  Asst.  master  mechanic 
|  Engine  house  foremen 
[  Foremen  of  car  inspectors 

f  Asst.  division  operator 

{  Op'tors  (teleg.,  teleph.,sig'l) 

{  Linemen 

Asst.  trainmasters 
Station  masters 
Asst.  station  masters 
Pass,  and  freight  conductors 
Pass,  and  freight  brakemen 
Baggagemen 
General  yard  masters 
Yard  masters 
Switch  tenders 

[Asst.  rd.  foremen  of  engines 
{  Enginemen 
[  Firemen 


Supt.  of  Trenton  div. . 


Supt.  of  the  Atlantic 
and  the  Camden 
terminal  division.  . 


[  Master  carpenters 
Division  engineer \  Supervisor  of  signals 

[  Supervisors I  Track 

\  foremen 
Master  mechanic 
Division  operator 
Trainmaster 
Road  foreman  of  engines 
Division  engineer 
Asst.  supt.  of  Delaware  and 
Raritan  Canal 

Master  mechanic 

Division  operator 

Trainmaster 

Road  foreman  of  engines 

Divisoin  engineer 

Asst.  supt.  of  ferries 


divisions  are  not  many  and  not  hard  to  hold  in  mind.  The 
foregoing  account  of  the  several  departments  can  be  made 
more  concrete  by  studying  the  organization  of  any  large 
railroad  company.    The  organization  of  the  Illinois  Central 


THE  ORGANIZATION  OF  THE  SERVICE    24-9 

i 

and  Pennsylvania  Railroads  are  here  given  in  outline,  but 
there  are  others  equally  typical  which  the  student  might 
study  to  advantage.  The  best  organization  to  study  is  that 
of  the  railroad  whose  offices  are  nearest  at  hand. 

The  diagrams  on  pages  242-246  show  the  main  depart- 
ments and  the  principal  subdivisions  to  be  found  in  the  or- 
ganization of  all  large  railroad  companies.  The  lines  of 
authority  from  the  top  to  the  bottom  of  the  service  and  of 
responsibility  from  the  bottom  to  the  top  are  shown  for  each 
part  of  the  organization. 

The  Pennsylvania  System,  being  larger  than  the  Illinois 
Central,  with  heavier  traffic  and  more  miles  of  track,  has  a 
larger  and  more  complex  organization.  The  various  de- 
partments of  the  system  are  under  the  direction  of  "sys- 
tem officers."  For  the  purpose  of  maintaining  closer  exec- 
utive supervision  the  system  is  divided  into  four  regions, 
each  under  the  direction  of  a  vice-president,  who  has  the 
same  general  powers  over  a  region  that  the  president  has 
over  the  entire  system.  The  chief  operating  officer  of  each 
region  is  the  general  manager.  The  Eastern  Region  is 
divided  into  five  grand  divisions,  the  Central  Region  into 
five,  the  Northwestern  Region  into  three  and  the  South- 
western Region  into  two.  Each  grand  division  is  under 
the  control  of  a  general  superintendent,  and  each  is  broken 
up  into  divisions,  with  division  superintendents  in  charge. 
The  organization  of  the  New  Jersey  Grand  Division  of  the 
Eastern  Region  is  shown  in  the  diagram  on  page  248,  and 
the  details  of  the  organization  of  a  single  division  are  also 

indicated. 

REFERENCES 
Haines,  Henry  S.     American  Railway  Management,  128-139 

(1897). 
Byers,  M.  L.     Economics  of  Railway  Operation  (1908). 
Morris,   Ray.     Railroad  Administration    (1910). 
The  Official  Guide  of  the  Railways  and  Steam  Navigation  Lines 

of  the  United  States  gives  a  list  of  the  principal  officers  of 

each  company,  and  thus  indicates  the  organization  of  each 

company. 


CHAPTER    XVI 

THE  ACCOUNTS   AND   STATISTICS   OF   THE  RAILROAD 

SERVICE 

The  usefulness  of  railroad  accounts,  250.  The  materials  of  railroad 
accounts  and  statistics,  251.  The  comptroller's  reports,  252. 
Annual  report  of  the  president,  252.  The  income  statement, 
253.  The  profit  and  loss  account,  256.  The  general  balance 
sheet,  257.  The  need  for  accuracy  and  uniformity  in  railroad 
accounts,  258.  Government  regulation  of  railroad  accounting, 
259.  Five  leading  sources  of  railroad  statistics,  262.  Suggested 
extensions  of  the  scope  of  transportation  statistics,  265.  Ref- 
erences, 268. 

Careful  accounting  is  essential  to  an  efficient  perform- 
ance of  the  railroad  service,  and  a  general  understanding  of 
railway  accounts  is  necessary  to  an  intelligent  interpreta- 
tion, by  the  student  or  the  investor,  of  the  financial  and 
physical  condition  of  a  particular  railroad  company  or  sys- 
tem. In  the  administration  of  every  large  business  enter- 
prise, the  directors  and  officials  depend  upon  the  accounts 
for  the  information  upon  which  to  act ;  and  in  the  railway 
corporation  especially,  whose  activities  are  scattered  over 
a  wide  territory  and  are  carried  on  in  distinct  departments 
each  employing  a  large  force  of  men,  it  is  necessary  that 
those  responsible  for  the  policy  of  the  company  and  for 
close  supervision  of  the  several  branches  of  the  service 
should  be  kept  fully  informed  regarding  the  property,  the 
receipts  and  expenditures,  the  needs,  the  deficiencies,  and 
the  accomplishments  of  each  department.  In  the  accounts 
as  now  kept  by  many  railroad  companies  is  focused  a  clear 
picture  of  the  condition  of  the  physical  property  of  different 

250 


RAILROAD  ACCOUNTS  AND  STATISTICS     251 

kinds,  of  the  extent  of  the  several  classes  of  services  being 
performed,  of  the  receipts  and  expenditures  connected  with 
the  service,  and  the  changes  taking  place  month  by  month 
or  year  by  year  in  the  property,  the  services,  and  the  finances 
of  the  company. 

The  comptroller  is  the  chief  accounting  officer  of  the  rail- 
road, reporting  in  some  companies  directly  to  the  president, 
and  in  others  to  a  vice  president  who  has  general  supervi- 
sion of  the  accounting  department.  The  chief  assistants 
of  the  comptroller  are  the  several  auditors,  each  having 
charge  of  a  certain  class  of  accounts.  Usually  the  accounts 
are  classified  as  follows :  merchandise,  coal  and  coke,  pas- 
senger, miscellaneous  (mail,  express,  etc.)  and  disburse- 
ments, and  the  title  of  the  auditor  corresponds  to  the  par- 
ticular group  of  accounts  of  which  he  has  charge.  The  fig- 
ures regarding  traffic,  receipts  and  expenditures  are  com- 
piled f"om  the  waybills,  tickets,  reports,  vouchers,  and  other 
papers  sent  to  the  offices  of  the  auditors,  where  they  are  all 
scrutinized,  checked  up,  and  carefully  recorded. 

The  records  of  car  movements  and  of  train  and  engine 
mileage  are  kept  by  the  car  accountants,  who  are  usually  sub- 
ject to  the  general  superintendents  in  the  operating  or  trans- 
portation department.  In  this  general  department,  likewise, 
are  the  engineers  in  charge  of  construction,  maintenance  of 
way,  and  equipment,  whose  reports  contain  the  statistics  re- 
garding the  physical  property.  The  statistics  of  train,  car, 
and  locomotive  performance  are  worked  up  in  detail  by  the 
several  departments  having  charge  of  the  performance. 
The  comptroller  gathers  these  statistics  from  the  different 
officials,  and  makes  such  compilations  and  tabulations  as 
may  be  needed.  Ordinarily,  the  auditing  department  does 
not  verify  the  traffic  and  operating  statistics,  unless  some 
evident  error  suggests  the  necessity  for  a  test.  The  statis- 
tics of  the  cost  of  handling  freight  traffic  per  ton  per  mile 
are  worked  up  in  the  accounting  department  by  charging 


252  RAILROAD  TRANSPORTATION 

to  the  freight  and  passenger  services  respectively  such  ex- 
penses as  can  be  thus  classified,  and  by  dividing  between  the 
two  services  such  expenses  as  are  common  to  both,  some- 
times according  to  the  earnings  and  sometimes  according 
to  the  locomotive  or  train  mileage  of  the  freight  and  pas- 
senger departments.  Different  companies  compute  statis- 
tics of  ton-mile  cost  by  dissimilar  rules,  and  such  statistics, 
consequently,  have  little  value  for  purposes  of  comparison. 

From  the  detailed  accounts  kept  by  the  accounting  de- 
partment, concise  reports  are  prepared  monthly  and  yearly. 
About  the  25th  of  each  month  the  books  are  written  up  and 
posted  for  all  classes  of  transactions  carried  on  during  the 
previous  month.  Then  a  summarized  account  for  that 
month  is  prepared,  covering  the  earnings  from  each  source, 
and  the  expenditures  for  operating  expenses,  taxes,  rentals, 
improvements,  construction,  and  equipment.  This  account 
contains  a  large  number  of  entries.  The  operating  expenses 
are  divided  into  eight  general  and  196  primary  accounts, 
and  operating  revenues  into  four  general  and  39  primary 
accounts.  Expenditures  for  new  construction  and  equip- 
ment cover  62  entries. 

From  the  proof-sheets  of  this  account  is  prepared  the 
comptroller's  monthly  report,  which  includes  a  statement 
of  the  gross  earnings,  operating  expenses,  net  earnings,  im- 
provements, construction  and  equipment,  and  also  contains 
such  statistical  information  as  may  be  desired  by  the  operat- 
ing and  executive  departments — earnings  and  expenses  per 
mile  of  road,  per  passenger  and  freight  train  mile,  etc. 

The  accounts  covering  the  business  of  the  year  are  sum- 
marized and  discussed  in  the  annual  report  of  the  president 
of  the  railroad  company  to  its  stockholders.  This  report, 
in  the  case  of  a  large  company,  necessarily  contains  consid- 
erable detail  and  covers  many  subjects.  The  financial  af- 
fairs of  the  company  are  presented  in  three  important  state- 
ments:  the  income  statement,   showing  the  revenues  and 


RAILROAD  ACCOUNTS  AND  STATISTICS  253 

expenditures  for  the  year;  the  profit  and  loss  account  in 
which  the  profit  or  loss  of  the  current  year  is  consoli- 
dated with  the  surplus  or  deficit  of  preceding  years;  and 
the  general  balance  sheet,  which  shows  the  total  assets  and 
liabilities  of  the  company. 

These  three  statements  in  the  annual  report  are  usually 
presented  in  the  same  form  as  is  required  by  the  Interstate 
Commerce  Commission  in  similar  statements  made  to  that 
body.  The  subdivisions  contained  in  the  income  statement 
as  prescribed  by  the  Interstate  Commerce  Commission  since 
June  30,  1914,  are  as  follows: 

OPERATING   INCOME: 

Railway  operating  revenues 
Railway  operating  expenses 

Net  revenue  from  railway  operations 
Railway  tax  accruals 
Uncollectible   railway   revenues 

Railway  operating  income 
Revenues  from  miscellaneous  operations 
Expenses  of  miscellaneous  operations 

Net  revenue  from  miscellaneous  operations 
Taxes  on  miscellaneous  operating  property 

Miscellaneous  opeiating  income 
Total  operating  income 

NONOPERATING  INCOME: 

Hire  of  freight  cars — Cr.  balance 

Rent  from  locomotives 

Rent   from   passenger  train  cars 

Rent   from  floating  equipment 

Rent   from  work  equipment 

Joint   facility  rent 

Income  from  lease  of  road 

Miscellaneous  rent  income 

Miscellaneous  nonoperating  physical  property 

Separately  operated  properties — profit 


254  RAILROAD  TRANSPORTATION 

Dividend  income 

Income  from  funded  securities 

Income  from  unfunded  securities  and  accounts 

Income  from  sinking  and  other  reserve  funds 

Release  of  premiums  on  funded  debt 

Contributions  from  other  companies 

Miscellaneous  income 

Total  nonoperating  income 
Gross  income 

DEDUCTIONS   FROM   GROSS   INCOME: 

Hire  of  freight  cars — Dr.  balance. 
Rent    for  locomotives 
Rent  for  passenger  train  cars 
Rent  for  floating  equipment 
Rent  for  work  equipment 
Joint  facility  rents 
Rent  for  leased  roads 
Miscellaneous  rents 
Miscellaneous  tax  accruals 
Separately  operated  properties — loss 
Interest  on   funded  debt 
Interest  on  unfunded  debt 
Amortization  of  discount  on   funded  debt 
Maintenance  of  investment  organization 
Income  transferred  to  other  companies 
Miscellaneous  income  charges 
Total  deductions  from  gross  income 
Net  income 

DISPOSITION    OF   NET   INCOME: 

Income  applied  to  sinking  and  other  reserve   funds 
Dividend  appropriations  of  income 

Income    appropriated    for    investment    in    physical    property 
Stock  discount  extinguished  through  income 
Miscellaneous  appropriations  of  income 
Total   appropriations 

Income  balance  transferred  to  credit  of  profit  and  loss 


RAILROAD  ACCOUNTS  AND  STATISTICS     255 

When  the  income  statement  is  given  in  this  form  in  the 
annual  report  of  the  president  an  analysis  of  the  operating 
revenues  and  expenses  is  presented  in  other  tables  in  the 
report.  In  the  reports  of  some  companies,  however,  the  in- 
come statement  itself,  instead  of  adhering  to  the  form  pre- 
scribed by  the  Interstate  Commerce  Commission,  contains 
a  brief  analysis  of  revenues  and  expenses.  Occasionally  the 
statement  may  have  the  following  form: 


INCOME  ACCOUNT 


Dr. 


Cr. 


OPERATING  EXPENSES    REVENUES 


Maintenance    of    way    and 

structures 
Maintenance  of  equipment 
Traffic  expenses 
Transportation  expenses 
General  expenses 

TAXES 

RENTS  PAID  UNDER  IN- 
COME ACCOUNT 

HIRE  OF  EQUIPMENT 

MISCELLANEOUS  IN- 
COME CHARGES 

INTEREST  ON  DEBT 

BALANCE 

Being  net  income  for  the 
year,  carried  to  profit  and 
loss  account 

Total 


Freight   revenues 

Passenger  revenues 

Excess  baggage  revenues 

Mail  revenues 

Express  revenues 

Other  passenger  train  reve 
nues 

Switching  revenues 

Special   service   train    reve- 
nues 

Other  freight-train  revenues 

Revenue     from     operations 
other  than  transportation 

OTHER  INCOME 

Interest    and    dividends    on 

securities  owned 
Rents,  etc. 


Total 


256 


RAILROAD  TRANSPORTATION 


The  usual  forms  of  the  profit  and  loss  account  and  of 
the  general  balance  sheet  are  as  follows : 


PROFIT  AND  LOSS  ACCOUNT 


Dr. 


Cr. 


Surplus  applied  to  reserve 
funds 

Dividend  appropriations  of 
surplus 

Surplus  appropriated  for  in- 
vestment in  physical  prop- 
erty 

Stock  discount  extinguished 
through    surplus 

Debt  discount  extinguished 
through  surplus 

Miscellaneous  appropriation  of 
surplus 

Loss  on  retired  road  and 
equipment 

Delayed  income  debits 

Miscellaneous  debits 


Credit  balance    (at  beginning 

of  fiscal  period)1 
Credit      balance      transferred 

from  income  1 
Profit  and  loss  on  equipment 

sold 
Delayed  income  credits 
Unrefunded  overcharges 
Donations 
Miscellaneous  credits 


Total  Total 

Balance    (surplus)    carried  to 
general  balance  sheet  x 

1  If  a  deficit  instead  of  a  surplus  exists  the  item  appears  in  the 
debit  column. 


RAILROAD  ACCOUNTS  AND  STATISTICS    257 


GENERAL    BALANCE    SHEET 


Assets 

INVESTMENTS 

Road 

Equipment 
Sinking   funds 
Stocks,  bonds,  etc. 

CURRENT  ASSETS 

Cash 

Special  deposits 
Materials  and  supplies 
Accounts    receivable,  etc. 

DEFERRED  ASSETS 

Working  fund  advances 

UNADJUSTED  DEBITS 

Rents  paid  in  advance 
Discount  on  capital  stock 
Discount  on  funded  debt 
Securities     issued     or     as- 
sumed, etc. 


Liabilities 


STOCK 


Capital  stock  outstanding 
Premium  on  capital  stock 

GOVERNMENTAL 
GRANTS 

LONG-TERM  DEBT 

Funded  debt  unmatured 
Receiver's   certificates 

CURRENT  LIABILITIES 

Loans  and  bills  payable 
Interest  matured  unpaid 
Funded  debt  matured  unpaid 
Dividend    matured    unpaid, 
etc. 

DEFERRED  LIABILITIES 

UNADJUSTED  CREDITS 

Tax  liability 

Premium  on  funded  debt 
Operating   reserves 
Accrued  depreciation,  etc. 

PROFIT  AND  LOSS—SUR- 
PLUS 


Total 


Total 


258  RAILROAD  TRANSPORTATION 

A  part  of  the  annual  railroad  report  is  usually  devoted  to 
an  explanation  and  discussion  by  the  president  of  the  im- 
portant changes  during  the  year  covered  by  the  report  as 
regards  traffic  and  earnings,  construction,  improvements  in 
track,  structures  and  equipment,  the  stocks,  bonds,  divi- 
dends and  securities  of  the  company,  the  relation  of  the 
corporation  to  other  companies,  and  such  other  subjects 
as  are  of  special  interest  to  the  holders  of  the  stocks  and 
bonds. 

The  above  tables  should  be  used  as  an  aid  to  the  study  of 
an  annual  report  of  some  large  railroad  corporation.1  If 
the  report  is  a  detailed,  comprehensive,  and  systematic  one, 
it  will  cover  all  the  points  contained  in  the  tables ;  but  there 
are  many  companies  whose  reports  are  incomplete,  espe- 
cially as  regards  the  information  concerning  the  physical 
condition  of  the  property.  The  object  of  some  reports  is 
to  make  the  best  possible  showing  for  the  company  rather 
than  to  give  the  most  accurate  and  lucid  account  possible, 
but  such  reports  upon  critical  examination  will  be  seen  to 
be  incomplete. 

As  the  public  nature  of  the  service  of  transportation  be- 
comes more  clearly  recognized  and  the  difference  between 
the  duties  of  the  quasi-public  railway  corporation  and  those 
of  the  strictly  private  corporation  is  being  brought  into 
greater  prominence  by  the  rapid  growth  in  the  size  of  the 
railroad  systems  and  in  the  increasing  tendency  for  the 
traffic  of  large  sections  of  the  country  to  pass  under  the 
control  of  a  single  management,  the  necessity  for  accuracy, 
completeness,  and  uniformity  in  railway  accounts  becomes 
stronger  and  more  general.  Public  opinion  does  not  justify 
a  railroad  corporation  in  making  an  inaccurate  or  otherwise 
misleading  report  for  speculative  purposes,  and  a  company 

1  In  studying  a  railroad  report — and  that  is  the  only  satisfactory  • 
text  for  the  study  of  railroad  accounts — the  student  will  be  assisted 
by  the  use  of  William  E.  Hooper's  Railroad  Accounting. 


RAILROAD  ACCOUNTS  AND  STATISTICS    259 

probably  does  itself  more  harm  than  good  by  putting  out 
an  inaccurate  report. 

The  wisdom  of  uniformity  in  the  accounts  of  all  rail- 
roads is  now  as  evident  as  is  the  necessity  for  accuracy, 
and  the  reasons  are  hardly  less  cogent.  If  all  railroad  re- 
ports are  accurate,  complete,  and  uniform,  the  directors  and 
officials  of  each  company  can  easily  compare  the  results  of 
their  administrative  policies  with  the  results  of  those  en- 
forced by  other  companies.  There  is  no  stimulus  to  im- 
provement equal  to  that  which  comes  from  comparison  with 
others  in  the  same  calling  or  business.  The  investor,  more- 
over, becomes  able  to  act  more  intelligently  when  he  can, 
either  personally  or  by  the  aid  of  an  expert  accountant, 
judge  of  the  merits  and  business  efficiency  of  particular 
railroads  with  whose  management  he  may  not  be  familiar 
by  contrasting  its  accounts  with  others  of  whose  affairs  he 
may  have  intimate  knowledge  or  whose  management  is 
generally  recognized  to  be  sound  and  conservative.  Like- 
wise from  the  standpoint  of  public  supervision  of  railroads, 
uniform  accounting  is  equally  necessary.  The  chief  pur- 
pose of  government  oversight  of  transportation  is  to  insure 
equity  in  charges,  and  the  accounts  kept  by  each  company 
contain  most  of  the  information  upon  which  a  decision  re- 
garding the  reasonableness  of  its  charges  must  be  based. 
Moreover,  a  charge  by  one  company  is  frequently  rendered 
equitable  or  inequitable  by  its  relation  to  the  charges  ex- 
acted by  other  companies,  and  whatever  facilitates  accurate 
comparisons  of  the  accounts  of  one  company  with  those  of 
other  companies  is  an  aid  to  the  intelligent  and  effective 
supervision  of  railway  management. 

By  the  Hepburn  Act  of  June  29,  1906,  railroads  engaged 
in  interstate  commerce  were  required  to  keep  their  ac- 
counts uniformly  and  as  directed  by  the  Interstate  Com- 
merce Commission.  Long  before  the  enactment  of  this  law 
the  necessity  of  securing  uniformity  of  accounting  had  been 


260  RAILROAD  TRANSPORTATION 

clearly  perceived.  In  fact  by  section  20  of  the  act  of 
February  4,  1887,  "to  regulate  commerce"  the  commission 
had  been  given  discretionary  power  of  prescribing  for 
railways  "a  uniform  system  of  accounts  and  the  man- 
ner in  which  accounts  shall  be  kept,"  but  the  law  did 
not  give  the  commission  definite  authority  to  inspect 
and  audit  the  accounts,  and  without  that  power  the  law 
could  not  be  enforced.  Before  the  enactment  of  the  Hep- 
burn law,  however,  there  had  been  considerable  progress 
made  in  securing  uniformity  in  railway  accounting  because 
of  the  influence  exerted  by  the  Association  of  American 
Railway  Accounting  Officers,  the  Interstate  Commerce 
Commission,  and  the  annual  convention  of  the  National  As- 
sociation of  Railway  Commissioners  of  the  States.  The 
fact  that  the  railroad  companies  were  obliged  by  law  to 
make  detailed  and  elaborate  reports  to  the  Interstate  Com- 
merce Commission  caused  the  companies  to  shape  their  ac- 
counts and  reports  according  to  the  statistical  requirements 
of  the  commission.  The  statistician  of  the  Interstate  Com- 
merce Commission  in  conference  with  the  accounting  offi- 
cers of  the  companies  worked  out  the  blanks  to  be  filled  in 
annually  by  the  railroads,  and  those  conferences  as  well 
as  the  requirements  of  the  commission  promoted  the  adop- 
tion of  uniform  methods.  Both  the  Interstate  Commerce 
Commission  and  the  Association  of  American  Railway  Ac- 
counting Officers  are  represented  in  the  annual  convention 
of  the  National  Association  of  Railway  Commissioners,  the 
statistician  to  the  Interstate  Commerce  Commission  and 
the  president  of  the  Accounting  Officers  Association  being 
members  of  the  standing  committee  on  railroad  statis- 
tics. 

The  State  commissioners  require  annual  statistical  re- 
ports from  the  railroads  covering  the  mileage  and  business 
done  within  their  respective  States,  and  the  annual  con- 
vention of  the  commissioners  did  much  to  give  similarity 


RAILROAD  ACCOUNTS  AND  STATISTICS     261 

if  not  complete  uniformity  to  their  annual  reports,  and  thus 
exercised  an  influence  upon  the  railroad  companies  to  adopt 
uniform  methods  of  keeping  their  accounts. 

The  investigations  of  the  Industrial  Commission  in  1898- 
1902  convinced  that  body  of  the  desirability  of  government 
auditing  of  railway  accounts,  and  it  recommended  to  Con- 
gress the  establishment  of  a  permanent  corps  of  expert 
auditors  with  complete  authority,  under  the  supervision  of 
the  Interstate  Commerce  Commission,  to  examine  periodi- 
cally the  accounts  of  all  railroad  companies,  whether  oper- 
ating or  financial  in  their  character,  in  order  to  secure  pub- 
licity in  respect  of  financial  and  operating  facts.  Such 
examinations  for  detection  of  violations  of  law  were  to 
be  subject  to  provisions  safeguarding  confidential  informa- 
tion similar  to  those  prevailing  in  the  case  of  the  inspection 
of  national  banks. 

Congress  wisely  decided  to  give  the  Interstate  Commerce 
Commission  full  power  to  regulate  the  accounting  practices 
of  the  railroads,  and  in  the  Hepburn  Act  authorized  the 
commission  to  employ  special  agents  and  examiners,  whose 
duty  it  would  be  to  inspect  and  examine  railway  accounts 
and  records  and  see  that  they  were  kept  in  accordance  with 
prescribed  forms.  The  law  forbade  carriers  to  keep  any 
other  accounts  than  those  approved  by  the  commission  and 
provided  for  punishment  by  fine  and  imprisonment  of  any- 
one who  neglected  to  observe  the  commission's  rules.  The 
fiscal  year  beginning  July  1,  1907,  was  the  first  year  in  which 
steam  railroads  engaged  in  interstate  commerce  were  re- 
quired to  keep  their  accounts  in  accordance  with  prescribed 
forms.  A  revised  classification  of  accounts  was  put  into 
effect  by  the  commission  on  July  1,  1914.  All  railroads 
make  uniform  annual  and  monthly  reports  to  the  commis- 
sion, and  the  annual  reports  of  the  railroad  officials  to  the 
stockholders  also  conform  to  the  accounting  system  estab- 
lished by  the  commission,  except  for  occasional  slight  vari- 


262  RAILROAD  TRANSPORTATION 

ations  of  the  form  in  which  certain  statements  are  pre- 
sented. 

In  making  uniformity  in  accounting  obligatory  Congress 
did  much  to  strengthen  government  supervision  and  regula- 
tion of  railroad  companies.  Those  who  were  opposed  to 
extending  the  regulative  authority  of  the  Government  over 
the  management  of  railroads  did  not  favor  a  law  requiring 
the  adoption  of  a  uniform  system  of  accounts,  because,  in 
order  to  make  the  law  effective,  it  was  necessary  to  provide 
for  an  inspection  of  corporate  accounts  by  public  officials, 
and  that  was  thought  by  some  railroad  interests  to  be  un- 
wise. In  practice,  however,  the  law  has  worked  extremely 
well.  It  has  brought  about  a  vast  improvement  in  the  ac- 
counting practices  of  the  railroad  companies,  which  has  re- 
sulted in  benefit  to  the  companies  themselves  and  to  invest- 
ors, and  it  has  increased  greatly  the  effectiveness  of  the 
work  of  the  Interstate  Commerce  Commission. 

Statistics  of  Railways 

The  statistics  compiled  in  regard  to  railroads  are  detailed 
and  voluminous,  and  necessarily  so.  Each  company  de- 
pends upon  its  statistical  records  and  data  for  the  informa- 
tion essential  to  the  administration  of  its  several  depart- 
ments;  the  National  and  State  governments  must  be  well 
informed  concerning  the  railroads  in  order  to  legislate  in- 
telligently regarding  public  supervision  and  to  enforce 
wisely  the  laws  affecting  the  railways. 

There  are  five  general  sources  (besides  many  minor 
sources)  whence  one  may  secure  statistical  information  re- 
garding railroads.  The  annual  reports  of  the  companies 
give  the  data  for  each  company  separately.  These  reports 
are  annually  published,  in  an  abbreviated  form,  in  Poor's 
Manual  of  Railroads,  which  excellent  volume  also  contains 
an  analytical  summary  aggregating  the  statistics  for  all  the 


RAILROAD  ACCOUNTS  AND  STATISTICS     263 

roads  in  the  United  States,  and  making  comparisons  with 
the  figures  for  past  years.  Most  of  the  States  annually  col- 
lect and  publish  statistics  covering  the  roads  within  their 
respective  boundaries ;  but  while  these  local  compilations 
are  of  value  to  the  States  in  levying  taxes  and  regulating 
transportation,  they  are  not  much  consulted  by  the  public 
generally,  because  the  comprehensive  statistics  to  be  found 
in  Poor's  Manual  of  Railroads  and  in  the  publications  of 
the  National  Government  are  more  satisfactory  for  refer- 
ence. 

The  national  censuses  of  1880  and  1890  covered  the  sta- 
tistics of  railroads  and  other  transportation  agencies,  but 
the  census  of  1900  did  not  include  the  data  regarding  steam 
railroads.  This  omission  was  made  because  it  was  thought 
that  the  compilation  of  census  statistics  of  railroads  could 
do  little  more  than  duplicate  the  statistical  work  of  the 
Interstate  Commerce  Commission.  If  there  were  no  decen- 
nial volume  to  show  the  railroad  progress  from  1890  to 
1900,  it  would  be  unfortunate;  but  the  regular  annual  re- 
ports of  the  Interstate  Commerce  Commission  compare  the 
data  for  the  current  year  with  those  for  each  of  the  pre- 
ceding ten  years. 

The  annual  volume  published  by  the  Interstate  Commerce 
Commission,  entitled  Statistics  of  Railways  in  the  United 
States,  is  the  most  comprehensive  and  detailed  work  avail- 
able, dealing  with  the  operating  and  financial  statistics  of 
the  railroads  of  the  country.  From  the  annual  reports 
made  by  the  railroads  to  the  commission  there  are  compiled 
and  presented  in  this  volume  elaborate  tables  showing  for 
each  railroad,  for  the  year  covered  by  the  report,  the  gen- 
eral balance  sheet,  income  statement,  and  profit  and  loss 
statement,  a  detailed  analysis  of  operating  revenues  and  ex- 
penses, a  statistical  account  of  operations  and  an  itemized 
statement  of  the  capitalization  of  the  railroad  and  of  its  in- 
vestments   other   than    road    and    equipment.      The   tables 


264  RAILROAD  TRANSPORTATION 

are  divided  according  to  the  classification  of  railroads 
adopted  by  the  commission.  Class  I  roads,  or  those  having 
annual  operating  revenues  in  excess  of  $1,000,000,  are  in- 
cluded in  the  first  table,  which  is  subdivided  into  three  sec- 
tions, a  section  being  devoted  to  the  railroads  of  each  of 
the  three  great  districts,  the  Eastern,  Southern  and  West- 
ern. The  reports  for  Class  II  and  Class  III  railroads  are 
subdivided  in  the  same  way,  and  their  tables  are  followed 
by  reports  of  lessor  steam  railway  companies,  a  table  show- 
ing intercorporate  relationships  of  railways,  and  statis- 
tical reports  of  switching  and  terminal  companies.  The 
tables  of  the  volumes  are  preceded  by  an  analytical  report  by 
the  statistician  of  the  commission,  in  which  are  contained, 
together  with  the  explanatory  text,  condensed  tabulations 
summarizing  the  large  tables  and  other  statements  describ- 
ing the  most  important  features  of  the  railway  business  in 
the  United  States.  In  this  introductory  report  by  the  stat- 
istician may  usually  be  found  all  the  figures  desired  by  the 
general  student  of  railroad  transportation.  A  regrettable 
fact  concerning  this  volume  of  statistics  is  that  nearly  two 
years  elapse  between  the  time  of  the  collection  of  the  ma- 
terial and  the  publication  of  the  report.  This  defect  is  in  a 
measure  overcome  by  the  fact  that  the  commission  publishes 
as  soon  as  possible  after  the  close  of  each  month  a  state- 
ment of  the  total  monthly  earnings  and  expenses  of  rail- 
roads and  also  issues  annually  a  statistical  report  of  all 
Class  I  railroads. 

Two  bureaus  maintained  by  the  railroads  publish  at  regu- 
lar intervals  important  statistical  and  other  information  con- 
cerning the  railways  of  the  United  States.  The  Bureau  of 
Railway  Economics,  at  Washington,  puts  out  each  month  a 
statement  of  the  revenues  and  expenses  of  steam  roads  of 
Class  I,  and  also  publishes  at  intervals  various  bulletins  con- 
taining material  of  great  value  to  the  student  of  transpor- 
tation.   The  Bureau  of  Railway  News  and  Statistics  at  Chi- 


RAILROAD  ACCOUNTS  AND  STATISTICS     265 

cago  publishes  each  year  a  number  of  The  Railway  Library, 
containing  selections  written  by  leading  authorities  in  the 
field  of  transportation  and  a  compilation  of  statistics  of 
American  and  foreign  railways.  In  the  explanatory  text 
accompanying  the  statistics  an  endeavor  is  made  to  present 
the  attitude  of  the  railroad  managers  in  the  various  contro- 
versies growing  out  of  regulation  of  railways  by  the  Gov- 
ernment. 

Although  the  present  statistics  of  transportation  seem 
comprehensive,  there  are  some  regrettable  omissions  of  de- 
sirable and  valuable  data.  The  most  serious  defect  is  the 
neglect  to  collect  annual  statistics  of  the  business  done  by 
carriers  by  water  along  the  seaboard,  by  telegraph  compa- 
nies, and  by  all  corporations  other  than  railroads  engaged 
in  the  transportation  of  interstate  commerce.  In  addition 
to  collecting  the  statistics  concerning  railroads,  the  Interstate 
Commerce  Commission  should  have  the  power  and  duty  of 
gathering  and  publishing  the  statistics  of  inland  navigation. 
As  the  statistician  to  the  commission  says  in  his  report  for 
1900,  "the  jurisdiction  of  the  commission  must  be  extended 
to  these  agencies  of  transportation,  so  far  at  least  as  annual 
reports  are  concerned,  before  it  is  possible  to  render  a  com- 
prehensive report  upon  interstate  traffic."  In  order  for 
Congress  to  act  intelligently  in  making  appropriations  for 
rivers  and  harbors,  and  in  regulating  the  business  of  the 
great  telegraph  companies,  annual  statistical  compilations 
are  indispensable.  In  some  measure  the  need  for  informa- 
tion has  been  supplied  by  special  census  reports,  by  reports 
of  members  of  the  Corps  of  Engineers  of  the  U.  S.  Army  in 
charge  of  the  work  of  river  and  harbor  improvement,  and  by 
reports  prepared  by  the  Bureau  of  Foreign  and  Domestic 
Commerce  in  the  Department  of  Commerce.  In  no  case, 
however,  do  the  compilations,  with  the  exception  of  those 
of  the  census  department,  present  an  orderly  statement  of 
the  domestic  commerce  on  waterways ;  and  the  census  re- 


266  RAILROAD  TRANSPORTATION 

ports  are  not  only  made  with  great  in  frequency  but  are  un- 
avoidably defective  and  inaccurate.  Systematic  records  and 
frequent  reports  on  the  part  of  carriers  are  the  only  basis 
for  accurate  government  statistics,  and  it  will  not  be  pos- 
sible for  the  Government  to  secure  full  and  reliable  statis- 
tics of  interstate  transportation  until  it  requires  all  car- 
riers engaged  in  that  transportation  to  keep  faithful  rec- 
ords and  make  regular  reports. 

The  statistics  of  railroad  capital  as  now  published  are 
not  complete,  because  only  the  nominal  or  face  values  of  the 
stocks  and  bonds  are  given.  As  was  explained  in  the  chap- 
ter on  Railway  Capital,  there  is  frequently  a  wide  discrep- 
ancy between  real  and  face  values  of  railroad  securities.1 
The  English  reports  have  a  feature  worth  copying.  They 
show,  year  by  year,  the  increase  in  capital  account  that  is 
real  and  the  increase  that  is  nominal  or  due  to  conversions 
and  consolidations.  It  is  impossible  to  tell  at  the  present 
time  from  the  general  balance  sheet  of  a  railroad  exactly 
how  much  has  been  spent  on  the  construction  of  the  road 
or  the  amounts  contributed  therefor  by  individuals  and  by 
the  National,  State  and  local  governments.  Since  1907, 
however,  the  Interstate  Commerce  Commission  has  re- 
quired that  the  first  item  on  the  debit  side  of  the  general  bal- 
ance sheet  show  the  investment  in  road  and  equipment,  and 
as  far  as  additions  and  betterments  since  that  date  are  con- 
cerned, a  trustworthy  statement  of  the  cost  is  available.  Any 
discrepancy  between  the  actual  cost  of  improvements  and 
the  par  value  of  securities  issued  for  payment  is  now  shown 

1  In  response  to  a  resolution  of  the  United  States  Senate,  as  was 
stated  above  in  Chapter  VIII,  the  Interstate  Commerce  Commission 
made  a  report,  February  24,  1903,  comparing  the  par  and  market 
values  of  railroad  securities  for  the  year  ending  June  30,  1900. 
The  report  presents  clearly  the  difficulties  encountered  in  securing, 
even  with  only  approximate  accuracy,  the  market  value  of  all  the 
securities  of  American  railroads.  Although  the  report  does  not 
cover  all  securities,  the  data  contained  are  instructive. 


RAILROAD  ACCOUNTS  AND  STATISTICS     267 

in  the  balance  sheet  as  a  premium  or  a  discount  on  the  se- 
curities disposed  of. 

The  value  of  freight  traffic  statistics  would  be  enhanced 
by  giving  separately  the  figures  for  intrastate  and  interstate 
traffic.  Such  a  classification  would  be  serviceable  in  con- 
nection with  questions  of  taxation  and  State  control.  The 
railroad  companies  have  nothing  to  gain  by  classifying 
State  and  interstate  business  separately,  and,  as  it  would  in- 
volve some  expense  to  them,  they  naturally  would  not  favor 
going  to  the  necessary  labor  and  cost.  It  would,  however, 
be  comparatively  easy  for  the  companies  to  compile  the  sta- 
tistics on  this  basis  from  the  waybills. 

Statistics  of  the  ton-mileage  of  each  of  the  leading  com- 
modities shipped  by  rail  would  be  instructive  both  to  the 
public  and  to  the  companies,  but  until  less  expensive  meth- 
ods of  railway  auditing  have  come  into  general  use  com- 
modity ton-mileage  statistics  would  involve  more  labor  and 
expense  than  the  Government  would  be  justified  in  requir- 
ing the  railroad  companies  to  expend.  The  publication  of 
such  statistics  year  by  year  would  show  the  localization  of 
industries  in  various  parts  of  the  country,  indicate  the  trend 
of  traffic  from  one  kind  of  commodity  to  another,  and  show 
the  companies  what  kinds  of  traffic  were  developing  slowly 
and  what  rapidly.  Such  information  would  assist  the  com- 
panies in  their  efforts  to  promote  traffic,  and  would  furnish 
the  Government  with  data  bearing  upon  the  reasonableness 
of  rates.  The  recent  development  of  mechanical  tabulating 
and  computing  devices  has  greatly  reduced  the  cost  of  ac- 
counting and  statistical  work,  and  it  would  be  possible  for 
the  railroad  companies,  without  assuming  any  serious  bur- 
den of  expense,  to  enlarge  very  considerably  the  present 
scope  of  railway  statistics. 

The  Department  of  Commerce  established  in  191 3,  as  a 
result  of  the  separation  of  the  functions  of  the  Department 
of  Commerce  and  Labor  created  in  1903,  has  done  some 


268  RAILROAD  TRANSPORTATION 

excellent  work  in  more  thoroughly  systematizing  the  com- 
pilation of  the  statistics  of  commerce  and  transportation, 
and  if  Congress  would  supply  sufficient  funds,  much  desir- 
able information  could  be  collected  concerning  branches  of 
our  commerce  about  which  little  that  is  definite  and  exact  is 
at  present  known.  The  statistics  of  ocean  trade,  which  are 
now  confined  to  our  international  commerce,  will,  it  is 
hoped,  be  made  to  include  our  coastwise  maritime  com- 
merce. Statistics  of  inland  navigation  and  of  all  transpor- 
tation businesses  should  be  compiled  either  by  the  Depart- 
ment of  Commerce  or  by  the  Interstate  Commerce  Commis- 
sion. It  would  probably  be  best  to  place  the  work  of  secur- 
ing statistics  of  all  transportation  companies — rail  and  in- 
land carriers  by  water — with  the  Interstate  Commerce  Com- 
mission, because  it  is  probable  that  by  so  doing  the  pub- 
lished statistics  of  interstate  traffic  as  a  whole  would  be 
more  systematic,  more  comprehensive,  and  better  correlated 
than  they  would  be  if  their  collection  was  put  in  charge  of 
two   independent  authorities. 

REFERENCES 

Woodlock,  Thos.  F.  The  Anatomy  of  a  Railroad  Report  and 
Ton-Mile  Cost  (rev.  ed.  1899). 

Greene,  Thomas  L.     Corporation  Finance,  chap,  vi  (1897). 

Johnson  and  Weyl.  "The  Statistics  of  Transportation,"  in 
Publications  of  American  Economic  Association,  New 
Series,  No.  2,  pp.  246-256,  March  1899.  [This  is  one  of 
the  papers  in  a  volume  on  the  Federal  census.] 

Poor,  H.  V.  Manual  of  Railroads  of  the  United  States  (an- 
nual). 

Interstate  Commerce  Commission.  Statistics  of  Railways  in 
the  United  States  (annual). 

Eaton,  J.  S.    Handbook  of  Railroad  Expenses  (1913). 

Hooper,  William  E.  Railroad  Accounting  (1915).  [The  best 
treatise  yet  published  on  the  subject.    It  was  written  after 


RAILROAD  ACCOUNTS  AND  STATISTICS  269 

the  Interstate  Commerce  Commission's  revised  classifica- 
tion of  accounts  of  July  I,  1914,  was  issued.] 

Stocks,  Bonds,  Etc.,  Subject  to  the  Act  to  Regulate  Commerce 
(Senate  Doc.  No.  178,  57  Cong-.,  2  sess.,  1903).  [A  report 
comparing  the  par  and  market  value  of  railroad  securities 
for  the  year  ending  June  30,  1900.] 

Interstate  Commerce  Commission.  "Accounting  Series,  Divi- 
sion of  Statistics  and  Accounts,  1907  and  1908."  [This 
series  is  made  up  of  circulars  describing  the  system  of 
uniform  accounts  prescribed  by  the  Interstate  Commerce 
Commission  under  the  act  of  June  29,  1906.] 

Ibid.  "Accounting  Series,  1914  and  1915."  [This  series  is 
made  up  of  circulars  describing  the  system  of  accounts 
since  the  general  revision,  effective  July  1,  1914.] 


PART   III 
THE  RAILROADS  AND  THE  PUBLIC 


CHAPTER  XVII 

[NTERRAILWAY  RELATIONS— RAILROAD  COMPETITION 
AND  AGREEMENTS  TO  MAINTAIN  RATES 

The  public  nature  and  the  unity  of  the  transportation  service,  273. 
Railroad  companies  are  cooperators  and  competitors,  274. 
Early  interrailway  relations,  275.  Early  arrangements  for 
through  traffic,  276.  Interrailway  rivalry;  its  beginnings,  277. 
The  struggle  for  the  Chicago-Atlantic  traffic,  278.  The  rivalry 
of  the  Atlantic  ports,  279.  Early  competition  in  the  West  and 
South,  280.  Nature  of  railroad  competition,  281.  The  railroad 
business  one  of  "increasing  returns,"  283.  The  restraint  of 
interrailway  competition  a  necessity,  284.  Cooperation  or  con- 
solidation is  the  alternative,  284.  Agreements  to  maintain 
rates,  284.     The  Saratoga  Conference,  286. 

Railroad  corporations  are  creatures  of  the  state,  insti- 
tuted to  serve  the  public  for  the  state  and  under  its  super- 
vision. The  service  performed  by  the  railroads  has  two 
characteristics  of  special  significance:  (1)  It  is  of  a  public 
nature,  and  may  be  performed  directly  by  the  government 
or  by  means  of  an  agent  authorized  by  the  state.  Whether 
this  service  shall  be  conducted  by  the  government  or  by  its 
creatures  is  a  question  of  expediency  which  is  decided  dif- 
ferently in  different  countries;  but,  in  whichever  way  this 
question  may  be  determined,  the  service  as  a  whole,  and  in 
its  several  branches,  has  close  relationship  with  the  govern- 
ment. (2)  Within  each  part  of  the  service — railroad  trans- 
portation, the  mail  service,  the  express  business,  etc. — there 
must  be  unity  of  action  extending  over  wide  areas.  The 
several  transportation  agencies  within  a  nation's  territory 
must  work  together  if  the  public  is  well  served ;  indeed,  an 

273 


274  RAILROAD  TRANSPORTATION 

international  cooperation  of  carriers  has  been  found  ad 
vantageons.  If  the  government  directly  conducts  each 
branch  of  the  service,  unity  of  action  within  its  boundaries 
is  assured,  and  the  question  of  cooperation  becomes  one  of 
securing  the  proper  international  relations ;  but  if  the  state 
delegates  a  branch  of  the  service,  as,  for  instance,  railroad 
transportation,  to  a  number  of  corporations,  a  large  meas- 
ure of  cooperation  among  those  companies  is  necessary. 

The  railroad  service  within  the  United  States  being  per- 
formed by  numerous  corporations,  these  several  organiza- 
tions are  brought  into  relationship  with  each  other  in  two 
ways :  as  cooperators  and  as  competitors.  They  are  co- 
operators  because  a  part  at  least  of  the  persons  and  things 
each  company  transports  moves  over  a  wider  territory  than 
is  served  by  the  company's  system  of  lines.  All  companies 
have  more  or  less  "through  traffic" — that  which  they  re- 
ceive from  other  railroads  or  turn  over  to  another  connect- 
ing line.  American  railroads  are  rivals  because  in  most  sec- 
tions of  the  country  much  of  the  traffic  has  the  choice  of 
more  than  one  route.  Even  if  a  territorial  grouping  of 
systems,  such  as  was  suggested  in  the  chapter  on  The  Pres- 
ent Railroad  System  of  the  United  States,  were  completely 
worked  out,  there  would  be  much  traffic  inbound  and  out- 
bound between  the  interior  and  seaboard  of  the  country 
that  could  choose  between  the  ports  of  two  or  more  sections. 
The  eastbound  traffic  from  the  Mississippi  Valley,  for  in- 
stance, can  leave  by  way  of  the  Gulf,  the  southern  Atlantic, 
the  middle  Atlantic,  the  New  England,  or  the  St.  Lawrence 
ports.  Likewise  the  westbound  traffic  from  the  middle 
section  of  the  United  States  has  the  option  of  many  routes. 
The  nature  and  scope  of  interrailway  competition  will  be 
discussed  more  fully  in  a  later  connection.  It  assumes  many 
forms,  some  of  which  are  less  obvious  than  those  just  cited. 

Such  being  the  conditions  under  which  the  railroad  com- 
panies perform  their  transportation  services,  an  understand- 


COMPETITION  AND  RATE  AGREEMENTS    275 

ing  of  interrailway  arrangements  is  requisite  to  a  clear 
knowledge  of  the  relations,  actual  and  ideal,  of  the  railroads 
to  the  public  they  serve,  and  to  the  government  from  which 
they  receive  their  authority  to  engage  in  the  business  of  pub- 
lic carriage,  and  to  which  they  are  accountable  for  a  proper 
performance  of  the  service  they  have  undertaken  to  render. 

The  extensive  railroad  systems  of  the  present  time  are  of 
comparatively  recent  growth.  During  the  first  two  decades 
of  railway  history  the  lines  controlled  by  even  the  larger 
companies  were  short,  a  road  200  miles  in  length  being  con- 
sidered a  long  one.  It  was  not  until  after  1850  that  a  length 
of  500  miles  was  reached  by  any  system.  The  Illinois  Cen- 
tral, constructed  in  the  fifties  to  a  length  of  700  miles,  was 
one  of  the  longest  roads  in  the  world.  The  Pennsylvania, 
by  construction  and  purchase,  and  the  New  York  Central 
by  consolidation,  passed  the  500-mile  limit  in  the  fifties ;  but 
it  was  not  until  after  the  Civil  War  that  a  length  exceeding 
1,000  miles  was  attained  by  any  system.  Before  1890  a 
maximum  of  5>°°°  nad  been  reached,  and  since  then  the 
process  of  consolidation  has  given  each  of  several  compa- 
nies the  ownership  or  control  of  more  than  10,000  miles  of 
road. 

Interrailway  arrangements  for  handling  through  passen- 
ger or  freight  traffic  were  but  little  developed  during  the 
first  25  years  of  railway  construction.  Each  company,  as 
far  as  possible,  kept  its  rolling-stock  on  its  own  lines,  and 
compelled  passengers  to  change  and  freight  to  be  trans- 
ferred when  the  points  of  junction  with  other  roads  were 
reached.  A  traveler  may  now  go  from  the  Atlantic  sea- 
board to  St.  Louis  or  even  to  San  Francisco  without  change 
of  cars,  but  as  late  as  in  the  fifties  he  had  to  make  seven 
changes  in  getting  from  the  Atlantic  to  the  Mississippi.  The 
conditions  under  which  the  through  freight  and  passenger 
traffic  was  conducted  before  interrailway  facilities  were  de- 
veloped are  described  in  a  statement  made  many  years  since 


27G  RAILROAD  TRANSPORTATION 

by  the  secretary  of  the  New  York  Central.  Speaking  with 
reference  to  the  situation  before  185 1  on  the  roads  now 
composing  the  New  York  Central  route,  he  said : 

We  had  ten  roads  between  Albany  and  Buffalo.  There  was 
just  about  as  much  efficiency  in  operating  ten  roads  as  there 
would  be  in  ten  men  trying  to  do  a  thing  that  one  ought  to 
do.  Every  board  of  directors  had  its  own  profit  to  make  and 
its  own  schemes  to  advance.  There  was  no  obligation  on  the 
part  of  any  one  company  to  do  anything  for  any  other. 
Through  lines  of  cars  could  be  run  only  by  very  complicated 
and  embarrassing  arrangements.  I  can  remember  the  time 
when  conductors  were  changed  at  the  end  of  each  one  of  the 
roads  of  the  old  line  between  Buffalo  and  Albany.  In  some 
cases  a  ticket  could  not  be  bought  through  from  Albany  to 
Buffalo.  The  elements  of  usefulness  and  economy  were  very 
few.  In  regard  to  freight,  there  was  no  obligation  on  the 
part  of  any  one  of  the  roads  to  take  a  single  pound  of  it  from 
another.  Except  so  far  as  they  might  agree  with  each  other, 
it  involved  changing  at  each  terminus.1 

Frequent  transfers  were  a  deterrent  to  travel  and  a  much 
more  serious  hindrance  to  freight  traffic.  The  handling  of 
freight  several  times  en  route  consumed  time,  increased  the 
liability  of  damage  in  transit,  and  made  the  costs  of  trans- 
portation so  high  as  to  restrict  long-distance  shipments 
mainly  to  nonperishable  commodities  of  relatively  high 
value.  These  obstacles  to  travel  and  freight  traffic  were 
removed  in  part  by  the  consolidation  of  the  short  connecting 
lines,  and  to  a  greater  extent  by  means  of  the  express  com- 
panies, "fast  freight  lines,"  and  "palace  car"  companies  that 
have  already  been  described.  The  amalgamation  of  the 
short  lines  began  in  a  small  way  in  the  first  decade  of  rail- 
way development,  but  was  not  actively  carried  on  until  after 

1  Report  of  Select  Committee  on  Transportation  Routes  to  the 
Seaboard  (Windom  Report).  "Evidence,"  157.  (Senate  Rep.  No. 
307,  43  Cong.,  1  sess.,  1874.) 


COMPETITION  AND  RATE  AGREEMENTS    277 

1850,  or  during  the  third  and  subsequent  decades  of  the 
growth  of  American  railways.  The  express  companies  date 
from  the  forties,  the  fast  freight  lines,  or  freight  dispatch 
companies,  from  the  fifties,  and  the  sleeping,  dining,  and 
parlor  car  companies  from  the  sixties.  These  companies 
were  all  separate  from  the  railroad  companies  at  the  begin- 
ning, and  the  express  and  "palace  car"  companies  have  re- 
mained independent,  but  the  freight  dispatch  companies,  as 
has  been  noted,  have  with  few  exceptions  become  the  co- 
operative or  company  freight  lines,  which  are  in  reality  a 
part  of  the  freight  traffic  departments  of  the  railroad  com- 
panies. 

These  facilities  for  handling  through  or  joint  traffic  es- 
tablished a  greater  degree  of  cooperation  among  connect- 
ing carriers  and  enhanced  the  ability  of  rival  lines  to  com- 
pete for  business  free  to  move  over  more  than  one  route. 
Indeed,  the  consolidation  and  cooperation  of  connecting 
roads  so  intensified  competition  as  to  give  to  the  interrail- 
way  relations  for  the  promotion  or  restriction  of  competi- 
tion far  greater  prominence  than  is  possessed  by  those  rela- 
tions which  are  concerned  with  arrangements  for  joint  traffic. 

The  construction  and  consolidation  of  railroads  in  the  fif- 
ties by  which  trunk  lines  several  hundred  miles  in  length 
were  established  increased  the  competition  among  carriers, 
especially  for  the  traffic  between  the  central  West  and  the 
Atlantic  seaboard.  In  the  early  fifties  four  lines — the  New 
York  Central, "  the  Erie,  the  Pennsylvania,  and  the  Balti- 
more and  Ohio — were  bidding  for  western  business,  the  two 
former  lines  connecting  the  seaboard  with  Lake  Erie,  the 
latter  two  the  seaboard  with  the  Ohio  River;  and  the  in- 
tensity of  this  competition  soon  became  a  matter  of  con- 
cern to  the  companies.  They  were  able,  however,  to  keep 
their  rivalry  under  fair  control  until  about  1870. 

The  five  years  preceding  the  panic  of  1873  were  charac- 
terized by  great  activity  and  much  speculation  in  business, 


278  RAILROAD  TRANSPORTATION 

and  this  activity  was  especially  manifest  in  railroad  con- 
struction. New  lines  were  projected  both  into  new  sec- 
tions and  into  territory  served  by  roads  previously  built. 
Some  roads  were  constructed  for  the  speculative  purpose 
of  being  sold  out  by  their  builders  to  the  old  companies 
whose  traffic  was  threatened.  Although  the  subsequent  de- 
velopment of  the  country  has  been  such  as  to  create  a  need 
for  most  of  the  roads  built  during  this  period  and  during 
the  later  periods  of  active  railroad  construction,  the  specu- 
lation in  railroads  that  preceded  the  panic  of  1873  was  ex- 
cessive and  was  one  cause  of  the  intense  rivalry  of  the  rail- 
ways during  the  succeeding  twenty  years. 

The  contest  was  keenest  among  the  railroads  connecting 
the  Mississippi  Valley  with  the  Atlantic.  In  1869  the  New 
York  Central  and  the  Pennsylvania  secured  control  of  the 
roads  connecting  their  western  termini — Buffalo  and  Pitts- 
burgh— with  Chicago,  and  a  struggle  at  once  ensued  for  the 
possession  of  the  eastbound  and  westbound  traffic  between 
Chicago  and  the  seaboard.  In  1868  the  rates  from  Chi- 
cago to  New  York  were  $1.88  per  hundred  pounds,  first 
class,  and  82  cents  fourth  class;  but  in  1869  a  "rate  war" 
carried  the  rates  for  a  time  to  25  cents  a  hundred  for  all 
classes.  Such  a  low  rate  as  that  could  not  long  be  main- 
tained without  bankrupting  the  roads,  and  the  charges  were 
raised  to  a  profitable  basis  within  a  few  months.  But  the 
published  rates  on  the  through  traffic  were  seldom  the  ones 
actually  charged  for  any  length  of  time.  Rates  fluctuated 
greatly  and  were  secretly  reduced  for  individual  shippers 
whenever  such  action  was  thought  to  be  necessary  to  pre- 
vent traffic  from  going  by  a  rival  route. 

The  situation  in  the  territory  of  the  trunk  lines  was  made 
still  more  unsettled  and  uncontrollable  in  1874  by  the  ex- 
tension of  the  Baltimore  and  Ohio  to  Chicago,  and  the  open- 
ing of  the  Grand  Trunk  route  from  Milwaukee  via  Detroit 
and  Montreal  to  Portland.    The  New  York  Central  and  the 


COMPETITION  AND  RATE  AGREEMENTS    279 

Pennsylvania  tried  to  maintain  rates,  but  the  Grand  Trunk, 
the  Erie,  and  the  Baltimore  and  Ohio  each  preferred  to  act 
independently.  As  soon  as  the  Baltimore  and  Ohio  reached 
Chicago  it  began  by  open  and  secret  methods  to  divert  traf- 
fic from  the  Pennsylvania  lines.  The  Grand  Trunk  and  the 
Erie,  whose  financial  management  was  highly  speculative, 
charged  whatever  rates  the  exigencies  of  competition  sug- 
gested. By  the  latter  part  of  1875  the  through  rates  on 
all  the  trunk  lines  were  well-nigh  demoralized.  In  De- 
cember of  that  year  a  truce  was  agreed  upon,  but  it  proved 
but  temporary.  For  eight  months  of  1876  a  violent  rate  war 
prevailed,  and  the  rates  charged  were  often  not  sufficient 
to  cover  the  costs  of  operating  the  trains.  By  the  end  of 
the  year  the  finances  of  the  roads  had  been  so  depleted  that 
peace  was  a  necessity,  and  in  1877  they  succeeded  in  reach- 
ing an  agreement  to  share  the  total  through  traffic  accord- 
ing to  stipulated  percentages. 

The  north  Atlantic  ports  reached  by  the  trunk  lines — ■ 
Baltimore,  Philadelphia,  New  York,  and  Boston — prospered 
or  declined  commercially  according  to  the  amount  of  traffic 
secured  by  the  railroad  of  which  the  city  was  the  terminus, 
and  so  the  contest  between  the  railroads  was  intensified 
by  the  struggles  of  rival  cities.  The  merchants  of  New 
York  thought  the  rates  to  and  from  the  West  should  be  the 
same  for  Philadelphia  and  Baltimore  as  for  New  York,  and 
less  for  New  York  than  for  Boston ;  but  the  merchants  of 
Boston,  Philadelphia,  and  Baltimore  thought  otherwise.  The 
unregulated  competition  of  the  trunk  lines  and  the  pro- 
tracted rate  wars  were  detrimental  to  the  trade  of  New 
York,  largely  because  the  traffic  that  had  previously  moved 
by  the  Erie  Canal,  and  thus  to  New  York,  was  secured  by 
the  railroads  and  distributed  among  the  other  Atlantic  ports. 
As  long  as  the  canal  rates  were  considerably  lower  than  the 
charges  by  rail  the  commercial  superiority  and  progress  of 
New  York  were  assured  ;  but  the  diversion  of  the  canal  busi- 


280  RAILROAD  TRANSPORTATION 

ness  to  the  railroads  threatened  to  check  the  advance  of  the 
trade  of  the  city.  The  New  York  Central  tried  to  hold  the 
trade  of  New  York  by  meeting  the  rates  of  the  ambitious 
and  reckless  rival  lines  that  were  striving  to  build  up  the 
trade  of  their  termini.  The  situation  of  1876  was  almost 
as  burdensome  to  the  business  interests  of  the  several  At- 
lantic seaports  as  it  was  to  the  railroad  companies,  and  they 
welcomed  the  settlement  of  the  rate  war.  The  rival  claims 
of  the  cities  as  to  the  rates  were  adjusted  by  a  compromise 
which  gave  Boston  the  same  export  rates  as  New  York, 
Philadelphia  slightly  lower  rates,  and  Baltimore  rates  some- 
what less  than  Philadelphia  received.  The  "differential" 
rates  that  were  first  agreed  upon  gave  Philadelphia  as  com- 
pared with  New  York  two  cents  less  a  hundred  pounds  on 
all  export  and  eastbound  domestic  freight.  The  corre- 
sponding Baltimore  differential  was  three  cents  less  a  hun- 
dred. The  domestic  eastbound  freight  rates  to  Boston  were 
higher  than  the  rates  to  New  York,  the  differentials  per 
hundred  pounds  being  10  cents  first  class,  six  cents  second 
class,  and  five  cents  for  lower  classes.  There  were  west- 
bound differentials  on  both  domestic  and  import  traffic,  which 
were  different  from  the  eastbound  differentials.  This  com- 
promise was  regarded  by  New  York  as  a  concession.  The 
merchants  of  that  city  were  not  satisfied  with  the  adjust- 
ment of  the  rates  made  at  the  beginning,  nor  has  New  York 
been  satisfied  with  the  differentials  established  by  subse- 
quent adjustments. 

The  competition  among  the  railroads  in  the  West  and  in 
the  South,  though  less  intense,  was  similar  to  that  among 
those  in  the  northeastern  part  of  the  United  States.  In  the 
central  West  the  most  important  lines  converged  at  Chi- 
cago, with  which  point  St.  Louis,  Kansas  City,  Omaha,  and 
other  cities  had  each  been  connected  in  1870  or  soon  there- 
after, by  two  or  more  rival  routes.  There  were  three  lines 
between  Chicago  and  St.  Louis  in  1870,  and  later  others 


COMPETITION  AND  RATE  AGREEMENTS    281 

were  constructed.  The  through  traffic  of  the  western  roads 
generally  was  eagerly  contested  for,  and  the  rates  fluctuated 
violently.  In  the  Southern  States  the  railroads  ran  from 
the  interior  regions  of  production  radially  to  the  ports  of 
the  Atlantic  and  Gulf  seaboards  and  to  the  markets  of  the 
Northern  States.  There  was  competition  among  the  rail- 
roads to  secure  as  much  business  as  possible  for  their  re- 
spective ports,  and  an  active  general  competition  between 
the  railroads  and  the  numerous  water  routes.  Traffic  be- 
tween the  Northeastern  and  Southern  States  might  be 
shipped  coastwise  or  by  rail ;  that  between  the  States  north 
of  the  Ohio  River  and  those  of  the  lower  Mississippi  Valley 
by  the  Mississippi  and  its  tributaries  or  by  the  railroads; 
while  the  many  streams  of  the  South  were  highways  much 
used  in  moving  traffic  to  and  from  the  seaboard.  Under 
these  conditions  the  maintenance  of  published  rates  on 
through  rail  traffic  was  impracticable  until  a  way  was 
found  whereby  the  railroad  and  steamship  companies  could 
work  together  in  making  rates  and  dividing  up  the  total 
business.  A  plan  of  united  action  was  developed  and  in- 
augurated in  1875. 

In  order  to  understand  why  the  railroad  companies  found 
such  difficulty  in  maintaining  their  rates  and  why  they  car- 
ried their  rivalry  to  such  extremes,  one  needs  to  consider  the 
nature  of  railway  competition.  The  merchant  or  the  man 
who  has  invested  capital  in  a  business  from  which  the  in- 
vested capital  can  be  withdrawn  without  much  loss  will  sus- 
pend his  business  temporarily  or  permanently  if  competi- 
tion becomes  so  severe  as  to  prevent  him  from  earning 
profits.    As  President  Hadley  says  : 

If  Grocer  A  sells  goods  below  cost,  Grocer  B  need  not 
follow  him,  but  simply  stop  selling  for  the  time.  For  (1) 
this  involves  no  great  present  loss  to  B.  When  his  receipts 
stop  most  of  his  expenses  stop  also.      (2)    It  does  involve  a 


282  RAILROAD  TRANSPORTATION 

present  loss  to  A.  If  he  is  selling  goods  below  cost,  he  loses 
more  money  the  more  business  he  does.  (3)  It  cannot  con- 
tinue indefinitely.  If  A  returns  to  paying  prices,  B  can  again 
compete.  If  A  continues  to  do  business  at  a  loss,  he  will 
become  bankrupt,  and  B  will  find  the  field  clear  again.1 

The  situation  is  very  different  with  competing  railroads. 
The  railroad  company  cannot  suspend  business  when  com- 
petition forces  down  the  rates,  although  the  earnings  may 
not  yield  any  profits  on  the  capital  invested.  This  is  so  be- 
cause fully  three-fourths  of  the  expenses  will  continue  even 
if  the  railroad  ceases  to  carry  traffic.  Very  little  of  the  cap- 
ital invested  in  a  railroad  (and  the  same  is  true  in  a  large 
measure  of  mining  enterprises  and  the  iron  and  steel  indus- 
tries) can  be  withdrawn.  When  put  into  a  railroad,  capital 
must  secure  an  income  from  that  form  of  investment,  or 
become  worthless;  so  if  the  company  stops  doing  business, 
no  interest  on  the  investment  can  be  obtained.  But  more 
than  this,  the  railroad  company's  expenses  for  maintenance 
and  repairs,  and  its  losses  from  deterioration  of  equipment, 
roadbed,  and  structures  do  not  stop  when  traffic  is  sus- 
pended. About  all  a  railroad  company  can  save  by  suspend- 
ing all  traffic  is  the  expenses  incurred  in  operating  the  trains. 
Such  being  the  case,  a  railroad  will  not  surrender  its  traffic 
to  a  rival,  even  though  the  earnings  are  so  small  as  to  leave 
no  surplus  to  pay  interest  on  capital.  As  long  as  the  re- 
ceipts from  traffic  will  cover  operating  expenses  and  yield 
a  small  amount  in  excess  to  apply  to  the  payment  of  ex- 
penses that  must  be  met  whether  business  is  being  carried 
on  or  not,  the  railroad  will  seek  to  hold  its  traffic  against 
its  competitors,  or  endeavor  to  secure  the  business  being 
handled  by  its  rivals. 

Unless  a  railroad  is  exceptionally  strong  financially,  it 
cannot  carry  a  large  share  of  its  traffic  at  rates  but  little 

1  Railroad  Transportation,  73. 


COMPETITION  AND  RATE  AGREEMENTS    283 

above  the  costs  of  operating  the  trains,  without  becoming 
bankrupt;  but  the  insolvent  railway  does  not  cease  to  do 
business.  It  will  continue  to  be  operated  either  by  its  for- 
mer owners  or  by  those  who  may  purchase  it,  and  while  it 
remains  in  a  condition  of  insolvency  it  is  apt  to  seek  compet- 
itive traffic  more  eagerly  than  its  solvent  rivals  can  do  with 
safety.  While  bankrupt,  the  road  is  not  obliged  to  pay  in- 
terest or  dividends  on  the  capital  invested,  and  while  tem- 
porarily freed  from  that  obligation  there  is  a  strong  tempta- 
tion to  secure  new  patronage  and  additional  tonnage.  In- 
solvent roads  have  frequently  yielded  to  this  temptation  and 
have  made  reckless  wars  upon  their  rivals,  regardless  of 
their  obligations  to  treat  the  public  without  unjust  discrimi- 
nation and  their  competitors  in  accordance  with  business 
ethics. 

But  whether  solvent  or  bankrupt,  every  railroad  has  a 
strong  incentive  to  enlarge  its  business,  because  an  increase 
in  traffic  does  not  correspondingly  add  to  the  expenses. 
After  a  railroad  has  been  constructed,  equipped,  and  put 
into  operation  many  expenses  are  independent  of  the  vol- 
ume of  traffic.  Just  as  many  expenses  are  not  much  less- 
ened by  a  decrease  in  business  or  a  suspension  of  opera- 
tions, so  are  they  enhanced  to  a  comparatively  small  ex- 
tent by  an  increase  in  the  traffic.  Until  the  point  is  reached 
when  the  facilities  of  a  railroad  are  fully  utilized,  the  greater 
the  volume  of  business  done  the  less  the  costs  per  unit  of 
business  (per  passenger  mile  or  ton  mile),  and  the  higher 
are  the  profits.  The  railroad  business  is  one  of  increasing 
returns.  A  company  with  a  traffic  of  1,000,000  tons  annu- 
ally will  much  more  than  double  its  profits  by  carrying 
2,000,000  tons,  provided  the  extra  business  can  be  secured 
without  reducing  the  rates,  and  if  a  considerable  reduction 
in  rates  should  be  necessary  to  secure  the  additional  traffic, 
the  company  will  probably  add  to  its  profits  by  taking  the 
extra  tonnage. 


284  RAILROAD  TRANSPORTATION 

Such  being  the  nature  of  competition  in  railway  affairs, 
some  means  for  regulating  its  action  are  necessary  if  the 
service  of  railroad  transportation  is  to  be  performed  with 
profit  to  the  companies  having  it  in  charge,  and  in  accord- 
ance with  the  best  interests  of  the  public.  If  interrailway 
affairs  were  controlled  by  forces  similar  to  those  governing 
the  business  relations  of  persons  engaged  in  agriculture  or 
merchandising,  their  regulation  by  unrestrained  competi- 
tion might  be  satisfactory;  but  experience  has  clearly  shown 
the  absolute  necessity  for  cooperation  among  carriers  in  the 
management  of  their  competitive  as  well  as  their  joint  busi- 
ness. Unbridled  competition  is  intolerable  alike  to  the  rail- 
road companies  and  to  the  public,  and  must  of  necessity 
be  checked.  Whatever  is  ruinous  to  all  parties  must  be 
stopped,  and  if  the  ruinous  practices  have  no  natural  limits, 
an  artificial  one  must  be  established. 

If  the  competition  among  rival  railways  is  to  be  re- 
strained, they  must  either  cooperate  or  consolidate.  If  they 
cannot  agree  upon,  and  work  in  accordance  with,  business 
methods  that  will  effectually  restrain  the  forces  which  lead 
to  ruinous  competition,  they  must  consolidate  under  a  single 
ownership  or  a  common  control.  There  is  no  other  alterna- 
tive. 

An  agreement  for  the  restraint  of  competition  may  be  for 
the  accomplishment  of  one  or  more  of  three  purposes:  (i) 
The  agreement  may  be  to  maintain  rates,  each  party  to 
the  agreement  being  free  to  secure  as  much  business  and  as 
large  earnings  as  can  be  obtained  at  the  rates  sanctioned  by 
the  compact.  (2)  The  agreement  may  divide  the  competi- 
tive traffic  among  the  interested  roads,  according  to  stipu- 
lated percentages.  (3)  The  agreement  may  allow  each  road 
to  secure  as  much  as  possible  of  the  competitive  business, 
but  require  the  earnings  of  all  the  lines  from  that  traffic  to 
be  divided  according  to  agreed  ratios.  The  most  effective 
method  of  restraining  competition  is  by  a  division  of  the 


COMPETITION  AND  RATE  AGREEMENTS    285 

field,  each  company  being  left  free  to  furnish  transportation 
in  a  section  of  country  within  which  it  is  permitted  to  con- 
duct its  business  unmolested  by  other  railroads. 

The  first  form  of  agreement  is  the  easiest  one  to  adopt, 
and  was  the  one  first  employed  by  the  railroads  to  regulate 
their  competition.  The  second  and  third  forms  of  agree- 
ments are  called  pooling,  and  for  many  years  pooling  ar- 
rangements were  a  part  of  all  the  cooperative  agreements 
of  rival  railroads.  A  division  of  the  field  can  scarcely  be 
accomplished  to  much  extent  by  formal  agreements,  but 
must  come  about  mainly  as  the  result  of  the  growth  of  large 
systems  of  roads.  As  was  noted  in  Chapter  V,  there  has 
been  a  tendency  toward  the  grouping  of  railroads  in  the 
United  States  in  such  a  way  that  particular  interests  might 
secure  more  or  less  complete  control  of  the  traffic  in  certain 
sections  of  the  country. 

When  competition  for  long-distance  traffic  became  active 
in  the  early  fifties,  the  necessity  for  agreements  to  prevent 
the  cutting  of  rates  secretly  and  to  secure  stability  in  charges 
became  apparent.  In  the  report  of  the  Pennsylvania  Rail- 
road in  1855,  the  president,  J.  Edgar  Thomson,  stated  that 
"with  a  view  to  agreeing  upon  general  principles  which 
should  govern  railroad  companies  in  competing  for  the  same 
traffic  and  preventing  ruinous  competition,  a  free  inter- 
change of  opinions  took  place  during  the  past  year  between 
the  officers  of  the  four  leading  East  and  West  lines,  and 
also  with  those  of  their  Western  connections."  The  traffic 
for  which  this  "ruinous  competition"  was  then  being  in- 
dulged in  was  quite  as  much  the  westbound  passenger  busi- 
ness as  the  eastbound  freight  tonnage.  Later  the  freight 
business  became  the  main  object  of  competition. 

This  conference  did  not  secure  harmonious  action.  In 
1857  the  New  York  Central  and  the  Erie  engaged  in  a  se- 
vere struggle  for  control  of  the  passenger  travel  between 
New  York  and  Lake  Erie.    This  struggle  was  followed  by 


286  RAILROAD  TRANSPORTATION 

an  agreement  signed  by  the  presidents  of  the  four  trunk 
lines  "for  the  purpose,"  as  President  Thomson  stated  in 
his  report  of  1858,  "of  agreeing  upon  remunerative  rates, 
abolishing  injudicious  practices,  and  effecting  a  harmony  of 
purpose  conducive  to  the  mutual  advantage  of  the  railway 
interest  and  the  public."  The  agreement,  among  other 
things,  named  a  person  to  act  as  umpire  for  the  adjustment 
of  differences  among  the  parties  to  the  compact. 

Agreements  similar  to  this  were  entered  into  frequently 
and  openly  by  the  railroad  companies  in  different  parts  of 
the  United  States  during  the  fifties  and  sixties,  the  officers 
who  convened  to  make  the  agreements  usually  being  the 
general  freight  agents.  However,  these  pledges  of  the  offi- 
cers of  the  competing  lines  failed  to  secure  stable  rates. 
Sudden  and  extreme  fluctuation  characterized  competitive 
charges,  and  it  was  evident  that  some  more  effective  ar- 
rangement was  needed. 

In  the  summer  of  1874  Commodore  Vanderbilt,  the  presi- 
dent of  the  New  York  Central,  conferred  with  representa- 
tives of  the  Pennsylvania  and  Erie  Railroads  at  Saratoga, 
and  they  agreed  upon  a  board  of  arbitration  to  settle  dis- 
putes among  their  roads.  Their  idea  was  to  agree  upon 
rates  as  formerly  and  also  to  establish  a  central  board  with 
power  "to  establish  rules  and  tariffs  which  should  be  bind- 
ing  upon  the  various  companies,  and  this  central  board  it 
was  intended  should  be  clothed  with  sufficient  powers  to 
hold  the  companies  firmly.  It  was  an  attempt  to  substitute 
arbitration  among  railroads  for  a  condition  of  perpetual 
warfare."  1 

Whether  this  plan  of  cooperation  would  have  succeeded 
had  it  been  given  a  trial  is  doubtful ;  but  it  was  not  given  a 
trial  because  it  was  not  acceptable  to  the  Baltimore  and  Ohio 
and  the  Grand  Trunk,  the  two  trunk  lines  that  had  just 

1  Charles  Francis  Adams,  Railroads:  Their  Origin  and  Problems, 
153- 


COMPETITION  AND  RATE  AGREEMENTS    287 

secured  Chicago  connections  and  were  desirous  of  securing 
the  maximum  amount  of  competitive  traffic.  The  Saratoga 
Conference  raised  a  great  storm  of  popular  opposition  to 
the  railroads,  because  the  public  thought  the  railroad  presi- 
dents had  conspired  to  create  an  oppressive  monopoly;  but 
it  had  no  effect  in  checking  interrailway  contests.  The  dis- 
astrous rate  wars  of  1875  and  1876  followed. 

The  agreements  to  maintain  rates  failed,  because  there 
was  no  authority  to  enforce  their  observance,  and  the  in- 
centives to  break  the  contract  were  always  strong.  The 
rates  were  decided  upon  by  the  higher  officials  of  the  com- 
panies, and  they  or  their  representatives  agreed  to  maintain 
the  rates  thus  established ;  but  as  soon  as  any  company  sus- 
pected another  of  violating  the  agreement,  it  would  author- 
ize its  subordinate  officials  or  the  soliciting  agents  "to  do 
as  others  are  doing  or  supposed  to  be  doing."  Railway 
managers  saw  clearly  that  the  only  way  to  maintain  rates 
upon  traffic  for  which  several  independent  railroads  were 
competing  was  to  remove  the  inducement  to  cut  the  rates, 
They  sought  to  accomplish  this  by  means  of  pooling. 


CHAPTER    XVIII 

INTERRAILWAY     RELATIONS     (Continued)—  POOLS     AND 
TRAFFIC  ASSOCIATIONS 

Definition  of  pooling,  288.  Description  of  traffic  and  money  pools, 
288.  The  beginning  of  railroad  pooling,  290.  Pooling  in  t..e 
West,  291.  The  traffic  association  and  the  pool  distinguished, 
292.  Pools  in  the  South,  292.  Early  agreements  in  trunk  line 
territory,  294.  The  trunk  line  pool  and  the  Joint  Executive 
Committee,  296.  The  situation  as  regards  railroad  pooling  in 
1887,  298.  Pooling  prohibited  by  the  Interstate  Commerce  Act, 
299.  Pooling  contracts  were  illegal  at  common  law,  300.  Reor- 
ganization of  pooling  contracts  to  eliminate  the  pooling  fea- 
ture, 301. 

The  main  purpose  of  pooling  was  to  prevent  the  cutting 
of  rates  and  fares — the  establishment  of  conditions  that 
would  enable  the  railroads  to  enforce  their  agreements  as 
to  charges.  The  pools  were  agreements  among  railroads 
whereby  their  competitive  traffic  or  the  receipts  from  that 
traffic  were  divided  among  the  companies  according  to  stip- 
ulated ratios.  I  Arrangements /for  the  division  of  the  busi- 
ness were  called  traffic  pools/  those  for  the  distribution  of 
the  receipts  money  pools! 

The  arrangement  effected  by  a  freight-traffic  pool  is  the- 
oretically simple!  The  roads  that  have  been  competing  for 
some  time  for  traffic  free  to  choose  its  route  observe  what 
share  of  the  total  traffic,  under  normal  and  peaceful  condi- 
tions of  rivalry,  is  carried  by  each  line,  and  make  an  agree- 
ment guaranteeing  that  each  road  shall  carry  during  the 
period  of  the  contract  the  percentage  of  the  total  tonnage 
to  which  past  experience  has  shown  the  road  to  be  entitled. 

288 


POOLS  AND  TRAFFIC  ASSOCIATIONS     289 

If  a  road  while  a  member  of  the  pool  does  not  receive  its 
stipulated  share  of  the  total  tonnage,  the  organization  hav- 
ing the  management  of  the  pool  in  charge  sees  that  tonnage 
is  diverted  from  the  roads  receiving  more  than  their  allot- 
ted percentage  to  the  line  having  a  tonnage  deficit.  In  or- 
der to  make  a  traffic  pool  effective,  the  railroad  companies, 
instead  of  the  shippers,  must  determine  the  route  by  which 
a  part  of  the  traffic  shall  move.  Usually  shippers  object 
to  surrendering  their  right  to  determine  the  route  by  which 
their  goods  shall  be  taken,  and,  although  the  companies 
always  receive  a  considerable  tonnage  of  unrouted  ship- 
ments, the  railroads  have  more  often  preferred  to  allow 
each  road  in  the  pool  to  accept  and  forward  the  tonnage  of- 
fered to  it,  and  require  the  railroads  hauling  more  than  their 
allotted  share  of  the  traffic  to  pay  a  stipulated  portion  of 
the  receipts  from  the  excess  to  those  roads  hauling  less 
than  their  allotted  percentage.  The  payment  of  the  sum 
is  insured  by  requiring  each  railroad  to  deposit  in  a  com- 
mon fund  a  fixed  percentage  of  its  entire  receipts  on 
pooled  traffic,  from  which  fund  the  differences  are  adjusted 
at  regular  intervals. 

Instead  of  attempting  to  divide  the  traffic,  competing  rail- 
roads may  allow  each  road  to  haul  all  the  tonnage  it  can 
secure,  and  divide  among  themselves,  according  to  a  stipu- 
lated ratio,  the  receipts  from  the  competitive  business,  that 
is,  establish  a  money  pool.  A  pool  of  this  sort  is  applicable 
to  passenger  business  as  well  as  to  freight  traffic.  In 
pooling  their  earnings  from  competitive  business,  it  is 
customary  for  each  road  to  retain  a  third  or  a  half  of 
the  revenue  it  derives  from  that  traffic,  and  to  turn  the  re- 
maining two-thirds  or  half  into  the  pool  (or  joint  purse,  as 
it  is  called  in  England),  to  be  distributed  periodically  among 
the  pooling  lines  in  accordance  with  the  percentages  stipu- 
lated in  the  agreement.  Each  road  is  allowed  to  retain  a 
part  of  the  earnings  to  cover  the  actual  expense  of  con- 


290  RAILROAD  TRANSPORTATION 

ducting  the  transportation  affected  by  the  pool,  and  the  per- 
centage withheld  from  the  joint  purse  must  be  small  enough 
to  remove  the  inducement  to  attempt  to  capture  traffic  from 
competitors. 

By  arrangements  such  as  may  be  established  by  the  pool- 
ing of  traffic  or  earnings  it  is  possible  to  prevent  a  rail- 
road from  deriving  immediate  profit  from  secretly  cutting 
rates  or  openly  engaging  in  a  rate  war;  but  the  temptation 
for  a  road  to  increase  its  percentage  of  the  total  traffic  car- 
ried by  all  lines  is  not  wholly  removed.  The  pooling  con- 
tracts are  for  a  short  period  of  a  year,  or,  at  most,  a  few 
years,  and  every  road  desires  to  secure  as  large  a  tonnage 
as  possible  in  order  that  it  may  share  more  largely  in  the 
subsequent  allotment  of  percentages.  The  pool  does  not  al- 
together destroy  competition.  Even  if  published  rates  are 
fully  maintained,  there  is  bound  to  be  a  rivalry  in  service, 
each  road  endeavoring  to  secure  the  largest  possible  volume 
of  business. 

President  Hadley  states  in  his  Railroad  Transportation 
that  "the  earliest  railroad  pools  were  probably  developed  in 
New  England,  but  they  were  on  a  small  scale,  and  the  whole 
thing  was  often  so  quietly  done  that  their  very  existence  was. 
almost  unsuspected."  So  little  is  known  of  the  history  of 
these  New  England  pools  it  is  probable  that  they  were  not 
important.  The  first  pooling  arrangement  of  much  conse- 
quence was  established  in  1870  by  the  railroads  connecting 
Chicago  and  Omaha — the  Northwestern,  the  Rock  Island, 
and  the  Burlington  roads.  These  three  lines,  having  about 
equal  facilities  for  handling  the  traffic  between  Chicago  and 
Omaha,  agreed  that  each  route  should  have  a  third  of  the 
business.  The  charges  by  all  lines  were  to  be  the  same,  and 
the  traffic,  without  solicitation  by  the  companies,  was  to  take 
whichever  route  the  shippers  might  decide  to  patronize. 
According  to  the  first  agreement,  each  road  was  to  retain 
45  per  cent  of  the  receipts  from  the  through  passenger  busi- 


POOLS  AND  TRAFFIC  ASSOCIATIONS     291 

ness  and  50  per  cent  of  the  earnings  from  the  through 
freight  traffic ;  the  remainder  of  the  revenues  from  this  com- 
petitive business  was  to  be  shared  equally  by  the  three  com- 
panies. This  agreement  was  maintained  successfully  for  14 
years,  with  the  exception  of  a  few  months  in  the  summer 
and  early  autumn  of  1882,  when  a  controversy  regarding 
the  distribution  of  freight  brought  on  a  rate  war  of  a  few 
months'  duration.  In  1884  the  Chicago-Omaha  pool  gave 
way  to  a  larger  organization — the  Western  Freight  Associa- 
tion. 

Six  years  after  the  establishment  of  the  Chicago-Omaha 
pool  the  Southwestern  Railway  Rate  Association  was 
formed  to  adjust  the  rates  on  traffic  between  Missouri 
River  points  and  Chicago  and  St.  Louis,  and  to  distribute 
the  earnings  from  that  traffic  among  the  several  competing 
lines.  One  purpose  of  the  association  was  to  protect  the 
grain-trade  interests  of  Chicago  and  St.  Louis  from  the  con- 
sequences of  unrestrained  competition.  The  pooling  agree- 
ment was  similar  to  that  of  the  Chicago-Omaha  pool,  except 
that  there  were  more  roads  parties  to  the  arrangement ;  but 
the  operation  of  the  larger  association  was  not  so  success- 
ful. For  a  time  the  association  acted  as  a  clearing  house 
for  the  settlement  of  balances  among  the  roads. 

In  addition  to  these  two  pooling  agreements,  numerous 
others  were  entered  into  by  the  railroads  of  the  Central  and 
Western  States  in  the  seventies  and  eighties,  some  of  the 
agreements  being  in  force  for  only  a  short  time,  others  for 
several  years.  The  traffic  between  Chicago  and  Milwaukee 
on  the  east,  and  St.  Paul  and  Minneapolis  on  the  west,  was 
regulated  by  the  Northwestern  Traffic  Association ;  the  field 
between  Chicago,  Milwaukee,  and  St.  Louis  on  the  east,  and 
Omaha  and  Council  Bluffs  on  the  west,  was  occupied  by  the 
Western  Freight  Association ;  to  the  south  of  this  was  the 
Southwestern  Railway  Rate  Association  just  referred  to. 
Among  the  organizations  having  authority  in  the  territory 


292  RAILROAD  TRANSPORTATION 

west  of  the  Missouri  River  were  the  Colorado  Railway  As- 
sociation, the  Colorado-Utah  Association,  the  Pacific  Coast 
Association,  and  the  Transcontinental  Association. 

The  Chicago-Omaha  agreement  entered  into  by  the  North- 
western, Rock  Island,  and  Burlington  Railroads  in  1870  was 
simply  to  establish  a  pooling  agreement;  but  the  organiza- 
tions or  "associations"  subsequently  formed  by  competing 
railways  in  the  West  and  other  sections  of  the  country  had 
other  purposes  and  activities,  although  the  pooling  of  traffic 
or  earnings  was  their  main  object.  In  the  traffic  associa- 
tions the  railways  attempted  to  regulate  all  their  interrela- 
tions. They  fixed  the  rates  on  joint  and  competitive  busi- 
ness, laid  down  rules  regarding  the  solicitation  of  traffic, 
took  measures  to  prevent  fraud,  determined  the  speed  at 
which  the  fast  passenger  trains  should  be  run,  decided  what 
kinds  of  tickets  should  be  issued,  and  what  privileges  should 
be  afforded  or  denied  shippers.  Until  1887  a  pooling  agree- 
ment was  a  regular  feature  of  the  organization  of  all  traffic 
associations;  from  1887  to  1920  pooling  was  illegal,  but 
the  traffic  associations  continued  to  exercise  their  other 
functions. 

The  traffic  association  was  developed  earliest  in  the  States 
south  of  the  Ohio  and  Potomac,  where,  in  1875,  the  South- 
ern Railway  and  Steamship  Association  was  formed  under 
the  masterful  guidance  of  Albert  Fink.  The  association 
grew  out  of  pooling  agreements,  the  first  of  which  was  en- 
tered into  in  December  1873  by  the  four  roads  connecting 
Atlanta,  Ga.,  with  the  seaboard.  The  pool  covered  only  the 
cotton  business  of  the  roads.  The  membership  of  the  asso- 
ciation comprised  the  railroads  in  Virginia,  North  and  South 
Carolina,  Georgia,  Tennessee,  and  Alabama,  and  the  steam- 
ship lines  connecting  those  roads  with  Baltimore  and  the 
other  north  Atlantic  seaports.  This  was  one  of  the  best 
organized  and  most  effective  traffic  associations,  and  came 
later  to  include  most  of  the  territory  east  of  the  Mississippi 


POOLS  AND  TRAFFIC  ASSOCIATIONS     293 

River  and  south  of  the  Ohio  and  Potomac.  In  its  plan  of 
organization  provision  was  made  for  an  annual  convention 
composed  of  one  delegate  from  each  constituent  company. 
This  body  had  legislative  powers ;  the  administrative  func- 
tions were  exercised  by  a  general  commissioner,  an  execu- 
tive committee  which  after  1883  consisted  of  the  managers 
of  the  principal  lines,  and  a  board  of  arbitrators.  The  gen- 
eral commissioner  was  given  large  powers,  and  this  was 
one  reason  why  the  organization  proved  effective.  The 
questions  the  commissioner  could  not  settle  were  referred 
to  the  executive  committee,  which  had  jurisdiction  over  the 
joint  and  competitive  traffic.  Its  action  had  to  be  unani- 
mous, and  in  case  of  a  disagreement  on  any  subject,  that 
question  was  referred  to  the  board  of  arbitrators  for  ad- 
justment. The  rates  on  competitive  traffic  were  determined 
by  the  executive  committee,  which  also  apportioned  the  traf- 
fic among  the  competing  roads.  Each  road  carried  the  traf- 
fic coming  to  its  lines.  If  any  road  hauled  a  tonnage  in  ex- 
cess of  its  allotment  it  was  allowed  to  retain  one-half  a  cen': 
per  ton  per  mile  on  the  excess,  to  cover  the  expense  of  car  • 
riage  ;  and  the  remainder  was  to  be  paid  to  the  commissioner 
who  divided  it  among  the  roads  carrying  less  than  their 
allotted  share.  At  first  the  railroad  companies  failed  to  live 
up  to  this  agreement,  but  in  1877  tne  device  was  adopted 
of  requiring  each  company  in  the  pool  to  deposit  20  per 
cent  of  its  revenue  on  each  shipment  of  pooled  business 
with  the  commissioner,  to  constitute  a  fund  for  the  adjust- 
ment of  balances.  This  plan  proved  highly  successful.  Each 
railroad  carrying  less  than  its  share  of  traffic  was  paid 
promptly  each  month  from  the  deposits  made  by  the  roads 
having  an  excess  of  tonnage,  and  whatever  remained  of  the 
20  per  cent  after  the  adjustments  were  made  was  returned 
to  the  depositing  companies. 

Naturally  the  most  difficult  problems  the  association  had 
to  deal  with  were  the  allotments  of  traffic  among  competi- 


294  RAILROAD  TRANSPORTATION 

tors.  These  allotments  covered  different  kinds  of  traffic, 
and  affected  several  groups  of  roads  and  steamship  lines, 
which  were  frequently  changing  their  relative  efficiency  as 
carriers.  Allotments  were  made  annually,  and  usually  were 
accepted  by  the  interested  companies,  but  not  always,  and 
local  rate  wars  occurred  from  time  to  time.  The  local  trou- 
bles, however,  did  not  disrupt  the  association,  because  the 
withdrawal  of  a  member  did  not  terminate  the  agreement 
among  the  others,  and  because  the  commissioner  was  given 
such  power  to  discipline  a  recalcitrant  line  that  he  was 
usually  able  to  bring  it  into  subordination.  Competition  was 
active  among  the  pooled  roads,  and  between  the  carriers  in 
the  pool  and  those  outside.  Each  member  strove  to  in- 
crease its  traffic  in  order  to  make  as  large  a  showing  as 
possible  when  the  annual  allotments  were  made.  The  rates 
fixed  by  the  association  on  most  of  the  business  into  and 
out  of  the  territory  served  by  its  members  were  influenced 
by  outside  competition.  The  rates  between  the  north  At- 
lantic ports  and  the  South  were  affected  by  the  charges 
made  by  sailing  vessels.  At  that  time  the  Mississippi  River 
had  a  considerable  regulative  influence  on  rail  rates.  Fur- 
thermore, then,  as  now,  every  city  was  zealous  in  securing 
«is  liberal  rates  as  possible  as  compared  with  its  rivals.  If 
any  industrial  or  commercial  center  within  the  territory  of 
the  pooled  lines  were  charged  higher  rates  than  its  rivals 
without  that  territory,  the  city  and  the  roads  serving  it  were 
liable  to  lose  their  business,  and  care  was  taken  to  guard 
against  such  a  result. 

The  competition  among  the  railroads  was  heaviest  in  the 
territory  between  the  central  West  and  the  north  Atlantic 
seaboard,  and  greater  difficulty  was  experienced  there  than 
in  the  West  or  South  in  making  effective  pooling  agree- 
ments. The  first  agreement  affecting  competitive  traffic  in 
this  field  was  one  between  the  railroads  mining  and  carrying 
most  of  the  anthracite  coal.     In  1872  they  entered  into  a 


POOLS  AND  TRAFFIC  ASSOCIATIONS     295 

contract  restricting  the  amount  of  coal  to  be  mined,  and 
dividing  up  the  production  and  traffic  according  to  fixed 
ratios.  This  agreement  lasted  for  four  years,  and  was  fol- 
lowed by  others  from  1878  on,  which  did  something  to 
steady  the  prices  and  output  of  coal,  but  which  never  fully 
accomplished  the  purpose. 

Another,  and  a  decidedly  objectionable,  plan  for  regu- 
lating the  competitive  relations  of  the  trunk  lines  was  to 
make  certain  large  shippers  the  "eveners"  of  the  traffic  of 
the  rival  roads.  In  applying  this  method  of  distributing 
business,  the  railroads  first  decided  what  share  of  the  total 
tonnage  should  go  to  each  line,  and  then  arranged  with  large 
shippers  to  allot  their  freight  from  time  to  time  among  the 
several  roads  in  such  a  way  as  to  enable  each  route  to  se- 
cure its  stipulated  share  of  the  total  of  all  competitive  traf- 
fic. The  first  eveners  were  the  shippers  of  live  stock  from 
Chicago  to  the  East,  with  whom  the  railroad  companies 
made  an  agreement  in  1875.  The  Standard  Oil  Company 
was  another  evener.  These  eveners  were  remunerated  for 
their  trouble  by  being  given  better  rates  than  other  shippers. 
The  large  shipper  was  favored  at  the  expense  of  the  smaller 
ones,  and  the  discrimination  was  most  unjust.  The  large 
shippers  who  acted  as  eveners  were  quick  to  take  advantage 
of  the  situation.  The  railroad  companies,  being  unable  to 
restrain  competition,  were  willing  to  pay  a  large  price  for  a 
peaceful  division  of  traffic,  and  the  concessions  in  rates  de- 
manded and  received  by  the  large  shippers  were  excessive 
and  ruinous  to  other  shippers.  In  1879, — that  is,  when  the 
trunk  lines  succeeded  in  pooling  their  eastbound  business 
— the  evener  plan  of  distributing  traffic  was  terminated. 
That,  however,  did  not  end  the  large  shipper's  opportunity 
to  secure  special  favors.  The  problem  of  personal  discrimi- 
nation remained,  and  unfortunately  existed  for  many  years. 

Three  years  of  strife,  much  of  which  consisted  of  violent 
rate  wars,  followed  the  failure  of  the  Saratoga  Conference; 


296  RAILROAD  TRANSPORTATION 

then,  in  1877,  tne  necessitous  condition  of  the  trunk  lines 
and  the  pressure  of  the  commercial  interests  affected  by 
the  struggle  caused  the  roads  serving  the  north  Atlantic, 
ports  to  unite  upon  a  pooling  arrangement.  Albert  Fink 
was  called  to  their  assistance,  and  in  July  an  organization 
of  the  four  trunk  lines  from  the  seaboard  to  Lake  Erie  and 
the  Ohio  River  was  effected.  In  December  the  roads  be- 
tween Pittsburgh,  Erie,  and  Buffalo  on  the  east,  and  Chicago 
and  St.  Louis  on  the  west  (what  is  now  called  Central 
Freight  Association  territory)  established  a  like  organiza- 
tion. The  organization  in  both  cases  included  an  executive 
committee,  in  which  each  road  subject  to  the  agreement  was 
represented.  Albert  Fink  was  chairman  of  the  executive 
committee  of  the  Trunk  Line  Association. 

Pooling  was  the  main  purpose  of  each  organization.  The 
apportionment  of  the  westbound  traffic  from  New  York 
was  made  in  1877;  the  New  York  Central  and  Erie  were 
each  to  have  33  per  cent,  the  Pennsylvania  25  per  cent,  and 
the  Baltimore  and  Ohio  9  per  cent.  The  pooling  of  the  traf- 
fic eastward  from  Chicago  was  a  more  difficult  task,  and 
was  not  accomplished  until  1879.  In  that  year  Albert  Fink 
further  developed  the  organization  of  the  railroads  between 
the  central  West  and  the  seaboard  by  securing  the  estab- 
lishment of  the  Joint  Executive  Committee,  composed  of 
representatives  of  the  trunk  lines  from  the  seaboard  to  the 
Ohio  and  Lake  Erie,  and  of  the  lines  in  the  Central  Traffic 
Association  territory.  As  chairman  of  the  Joint  Execu- 
tive Committee,  Mr.  Fink  did  not  have  so  much  authority 
as  he  had  as  commissioner  of  the  Southern  Railway  and 
Steamship  Association. 

The  Joint  Executive  Committee  endeavored  to  accom- 
plish three  things:  (1)  To  fix  the  rates  (or  the  "differ- 
entials") which  Philadelphia  and  Baltimore  should  have 
as  compared  with  New  York  and  Boston  on  the  Western 
business;    (2)    to   apportion    the    total    competitive   traffic 


POOLS  AND  TRAFFIC  ASSOCIATIONS     297 

among  the  interested  roads;  (3)  to  have  supervision  over 
the  joint  traffic  shared  by  the  roads  east  and  west  of  Buffalo, 
Erie,  and  Pittsburgh. 

The  first  of  these  problems  proved  a  most  difficult  one, 
and  was  never  settled  to  the  satisfaction  of  all  parties. 
The  compromise  arrangement,  described  on  page  284,  prob- 
ably dealt  with  the  question  as  fairly  as  was  possible. 
Indeed,  Albert  Fink's  report  on  "Adjustment  of  Railroad 
Transportation  Rates,"  made  in  1882,  showed  clearly  that 
the  rates  on  export  traffic  from  the  central  West  to  each  of 
the  north  Atlantic  ports  were  at  that  time,  and  must  be, 
a  part  of  the  through  rates  from  the  central  West  to 
Liverpool  and  Europe,  and  that  the  rail  charges  to  Phil- 
adelphia and  Baltimore  were  as  much  less  than  those  to 
New  York  as  the  ocean  rates  from  Philadelphia  and 
Baltimore  to  Europe  were  greater  than  from  New  York 
to  Europe.  The  legislature  of  New  York  State  mani- 
fested its  disapproval  of  the  formation  of  the  Joint  Ex- 
ecutive Committee,  and  of  its  settlement  of  the  question 
of  differential  rates,  by  the  appointment  of  a  committee 
of  investigation — the  Hepburn  Committee — whose  inves- 
tigations and  report  added  much  to  public  information 
regarding  the  railway  problem  in  general,  although  it 
threw  little  light  on  the  question  of  the  effect  of  railway 
pooling  on  the  business  of  New  York  State  and  New  York 
City.  The  New  York  Central  Railroad,  being  dissatisfied 
with  the  differential  rates,  carried  on  a  rate  war  in  1881, 
and  another  in  1884. 

The  second  duty  assigned  the  Joint  Executive  Com- 
mittee— the  pooling  of  eastbound  traffic — was  performed 
in  1879.  To  enforce  the  pooling  agreements,  and  to  super- 
vise the  business  arrangements  and  rates  affecting  the 
joint  business  of  the  eastern  lines  and  their  western  con- 
nections, a  progressively  efficient  organization  was  de- 
veloped.    As  reconstructed  in  1885,  the  traffic  association 


298  RAILROAD  TRANSPORTATION 

of  which  the  trunk  lines  were  members  provided  for  the 
division  of  competitive  traffic  and  the  monthly  settlement 
of  balances  by  drafts  upon  a  deposit  made  with  a  trustee. 
The  governing  body  of  the  association  was  a  committee 
of  the  presidents  of  the  seven  roads  that  were  members 
of  the  organization.  The  presidents'  committee  selected 
an  executive  committee,  the  chairman  of  which  was  the 
chief  administrative  officer  of  the  association.  There  were 
also  freight  and  passenger  committees  and  a  permanent 
arbitrator  to  whom  was  referred,  for  final  determination, 
questions  concerning  which  the  members  of  the  associa- 
tion could  not  agree.  As  thus  constituted,  the  organi- 
zation gave  promise  of  being  able  to  maintain  orderly 
relations  among  the  carriers  competing  for  the  vast  traffic 
moving  east  and  west  through  the  north  Atlantic  ports ; 
hut  in  1887  the  vitality  of  the  organization  was  largely 
impaired  by  the  law  making  illegal  the  pooling  of  freight 
traffic. 

In  the  foregoing  paragraphs  an  account  has  been  given 
of  the  more  important  but  not  of  all  the  railway  pools 
lhat  were  organized  in  the  seventies  and  eighties.  In 
7887  practically  all  the  roads  having  a  large  volume  of 
competitive  traffic  were  members  of  some  pooling  organ- 
ization. The  interrailway  relations  were  not  altogether 
•jatisfactory,  but  the  conditions,  at  least  as  far  as  the  car- 
riers were  concerned,  were  improving.  Progress  was  be- 
ing made  in  regulating  rate  fluctuations  and  the  conse- 
quent discriminations.  It  does  not  seem,  moreover,  that 
the  pools  were  a  detriment  to  the  public.  Although  the 
rival  railroads  made  their  rates  by  joint  action,  and  united 
to  maintain  the  charges  thus  agreed  upon,  they  were  not 
able  to  control  the  industrial  forces  to  which  transporta- 
tion charges  are  in  a  large  measure  subject.  Nor  was 
it  possible  for  the  railroads  by  means  of  rate  agreements 
and  pools  to  prevent  the  ocean,  the  large  rivers,  and  the 


POOLS  AND  TRAFFIC  ASSOCIATIONS     299 

Great  Lakes  from  exercising  a  wide  and  effective  influence 
on  rail  rates.  From  1870,  when  pooling-  began,  to  1887, 
when  it  was  prohibited  by  law,  the  average  receipts  of 
the  railroads  of  the  United  States  for  hauling  a  ton  of 
freight  one  mile  declined  from  nearly  two  cents  (in  gold) 
to  about  one  cent;  in  other  words,  the  average  ton-mile 
earnings  in  1887  were  only  a  little  more  than  half  those 
of  1870.  Charges  did  not  decrease  because  of  pools,  but 
the  pools  did  not  prevent  their  decline. 

Nevertheless,  the  public  was  strongly  opposed  to  pools. 
The  people  generally  thought  that  pooling  enabled  the 
railroads  to  establish  monopoly  conditions  in  transporta- 
tion; indeed,  the  public  opposition  to  railway  practices 
(some  of  which  were  not  objectionable)  during  the  sev- 
enties and  eighties  centered  against  pooling.  It  cannot 
be  shown,  however,  that  pooling  enabled  the  railroads  to 
fix  their  charges  at  will,  and  it  is  clear  enough  that  dis- 
crimination in  rates  and  fares  rather  than  the  cooperation 
of  competing  railroads  was  the  central  abuse. 

Section  5  of  the  Interstate  Commerce  Act,  passed  by  Con- 
gress in  1887,  declared: 

That  it  shall  be  unlawful  for  any  common  carrier  subject 
to  the  provisions  of  this  act  to  enter  into  any  contract,  agree- 
ment, or  combination  with  any  other  common  carrier  or  car- 
riers for  the  pooling  of  freights  of  different  and  competing 
railroads,  or  to  divide  between  them  the  aggregate  or  net 
proceeds  of  the  earnings  of  such  railroads  or  any  portion 
thereof;  and  in  any  case  of  an  agreement  for  the  pooling  of 
freights  as  aforesaid,  each  day  of  its  continuance  shall  be 
deemed  a  separate  offense. 

Previous  to  the  passage  of  this  law,  similar  action  had 
been  taken  by  several  of  the  States,  particularly  by  those 
in  the  central  West,  where  the  necessity  for  reforming 
the    methods    of    railway    management    was    most    keenly 


300  RAILROAD  TRANSPORTATION 

felt,  and  this  antipooling  section  of  the  national  act  was 
demanded  by  the  members  of  the  House  of  Representatives 
from  the  South  and  West.  The  Senate  was  not  in  favor  of 
prohibiting  pooling,  but  the  House  of  Representatives  in- 
sisted upon  its  being  done. 

In  a  certain  sense  pooling  contracts  had  never  been 
legal.  The  railroad  companies  did  not  commit  an  offense 
by  entering  into  a  pooling  agreement,  but  the  contracts 
thus  made  could  not  be  enforced  by  legal  action,  because 
the  courts  regarded  them  as  being  in  restraint  of  trade. 
It  is  a  general  principle  of  common  law  that  contracts  in 
restraint  of  trade  are  void  because  they  are  in  conflict 
with  public  policy.  The  sense  in  which  pooling  agreements 
were  illegal  before  1887  was  clearly  stated  by  Judge  Cooley, 
who  said : 

A  contract  may  be  illegal  in  the  sense  that  it  is  forbidden 
by  a  law  which  imposes  some  penalty  for  entering  into  it;  or  it 
may  be  illegal  because,  though  not  forbidden,  it  is  considered 
to  be  of  an  injurious  and  demoralizing  tendency,  and  therefore 
the  law  will  not  favor  it,  but  will  refuse  to  lend  its  aid  in 
its  enforcement.  If  a  contract  is  only  illegal  in  this  last 
sense,  parties  are  at  perfect  liberty  to  enter  into  it  if  they 
please,  but  performance  of  its  conditions  must  be  entirely 
voluntary. 

Not  being  enforceable  by  legal  procedure,  the  strength 
of  the  pooling  agreement  depended  upon  the  honor  of 
the  members  to  the  contract  and  upon  the  successful 
imposition  of  fines  for  a  violation  of  its  terms.  Large  use 
was  made  of  fines  to  enforce  the  agreements,  the  collec- 
tion of  the  fines  being  secured  by  requiring  members  to 
keep  a  considerable  deposit  in  the  pool.  It  is  thought 
by  many  persons  that  railway  pooling  has  never  been 
given  a  thorough  test  in  this  country,  because  of  the  extra 
legal  character  of  the  contracts ;  but  whether  the  pooling 


POOLS  AND  TRAFFIC  ASSOCIATIONS     301 

agreements  would  really  have  been  more  effective  had 
they  been  sanctioned  by  law  is  uncertain.  The  pool  was 
an  agency  by  which  the  railroads  sought  to  cooperate; 
indeed,  it  was  in  many  respects  the  medium  by  which 
the  rival  companies  sought  to  arbitrate  their  conflicting 
interests,  and  it  is  doubtful  whether  contracts  for  the  pro- 
motion of  those  ends  would  have  gained  much  strength 
from  the  sanctions  and  penalties  of  the  law. 

The  prohibition  of  pooling  in  1887  compelled  a  reor- 
ganization of  traffic  associations,  but  the  necessity  for  co- 
operation required  the  continuance  of  the  associations. 
The  trunk  lines  signed  new  articles  of  agreement  a  few 
days  after  the  Interstate  Commerce  law  went  into  effect, 
"for  the  purpose  of  facilitating  the  transaction  and  inter- 
change of  business  with  each  other  and  with  their  con- 
necting lines."  The  Grand  Trunk  Railway  was  not  a  party 
to  this  agreement,  and  a  serious  rate  war  followed,  the  re- 
sult of  which  was  a  new  agreement  in  1889,  at  which  time 
the  Grand  Trunk  became  a  member  of  the  Trunk  Line 
Association. 

The  Southern  Railway  and  Steamship  Association  elimi- 
nated the  pooling  part  of  its  organization,  and  continued 
to  exist.  By  means  of  fines  it  was  able  to  prevent  serious 
rate  disturbances  until  the  business  depression  of  1893 
came,  when  the  struggle  for  traffic  became  so  intense  that 
the  association  was  unable  to  control  the  action  of  its 
members,  and  the  organization  was  terminated.  Two  years 
later  the  Southern  States  Freight  Association  was  formed. 

Rate  wars  prevailed  generally  west  of  Chicago  in  1887 
and  1888,  and  the  railroad  companies  had  great  difficulty 
in  forming  organizations  strong  enough  to  prevent  rate 
cutting  and  retaliation.  The  various  associations  that  had 
existed  previous  to  the  prohibition  of  pooling  were  reor- 
ganized, and,  in  addition  to  the  local  bodies,  the  presidents 
of  the  interested  roads,  early  in  1889,  organized  the  Inter- 


302  RAILROAD  TRANSPORTATION 

state  Commerce  Railway  Association,  with  the  hope  of  ex- 
ercising an  effective  control  throughout  the  entire  territory 
west  of  Chicago,  with  the  exception  of  that  served  only 
by  the  Pacific  roads  and  the  international  lines.  This  organ- 
ization was  a  failure,  as  was  also  one  which  succeeded  it, 
and  it  was  not  until  January  1891,  when  the  Western 
Traffic  Association  was  formed,  that  the  railroads  com- 
posing the  several  traffic  organizations  west  and  south- 
west of  Chicago  were  able  to  cooperate  with  any  degree  of 
success.  The  Western  Traffic  Association  did  not  sup- 
plant the  smaller  organizations,  but  federated  them  by  being 
a  court  of  appeal  in  matters  of  rates  and  in  other  con- 
troversies. One  of  the  most  vigorous  of  the  subordinate 
bodies  was  the  Trans-Missouri  Freight  Association,  whose 
history  will  be  referred  to  in  the  next  chapter. 

The  Pacific  roads,  including  the  Canadian  line,  organ- 
ized the  Transcontinental  Association  in  1888.  The  chief 
problem  that  body  had  to  solve  was  the  competition  of 
the  Canadian  Pacific  with  the  American  lines.  Differ- 
ential and  lower  rates  via  the  Canadian  road  were  agreed 
•Jo,  but  as  these  were  not  satisfactory  to  the  Southern  Pa- 
cific, the  Transcontinental  Association  came  to  an  end  in 
1892.  The  following  year  the  three  California  lines  estab- 
lished a  Transcontinental  Freight  Rate  Committee,  which 
was  in  existence  until  1897,  when  it  gave  place  to  the  Trans- 
continental Freight  Bureau,  of  which  all  the  Pacific  lines  in 
the  United  States  became  members. 

The  traffic  associations  thus  reorganized  endeavored  to 
regulate  the  interrelations  of  rival  carriers,  but  without 
much  success.  When  the  business  depression  of  1893  and 
the  following  four  years  caused  railway  traffic  to  fall  off 
many  roads  became  bankrupt  and  others  were  threatened 
with  insolvency.  The  struggle  for  business  became  in- 
tense and  ruthless,  and  discriminations  were  general.  The 
regulation  of  competition  by  pooling  was  not  permissible,  but 


POOLS  AND  TRAFFIC  ASSOCIATIONS     303 

under  the  stress  of  circumstances  the  railroads  sought 
to  do  secretly  or  indirectly  what  the  law  prevented  them 
from  doing  openly.  In  justification  of  their  action  the 
railroad  companies  asserted  that  the  law  imposed  impos- 
sible conditions  upon  them.  However  that  may  have  been, 
it  is  certain  that  the  financial  condition  of  the  railways  was 
most  unsatisfactory  from  1893  to  1897;  that  condition,  how- 
ever, was  mainly  the  result  of  the  speculative  financiering 
of  the  preceding  twenty  years.  The  antipooling  law  was 
only  one  and  a  minor  cause  of  their  discomfiture. 


CHAPTER  XIX 

INTERRAILWAY  RELATIONS  (Concluded)—  THE  PRESENT 

SITUATION 

Efforts  of  trunk  lines  to  regulate  competition  after  the  prohibition 
of  pooling,  304.  Traffic  associations  decided  to  be  a  violation 
of  antitrust  law  of  1890,  306.  Effect  of  the  decision  in  the 
traffic  association  cases,  307.  Progress  of  railroad  consolida- 
tion, 307.  Methods  of  consolidation,  308.  "Community  of 
interest,"  309.  Traffic  associations  and  informal  agreements, 
311.  Pools  legalized,  314.  Classes  of  traffic  associations,  315. 
Shippers'  organizations,  318.     References,  319. 

The  methods  by  which  the  railroads  attempted  to  regu- 
late their  competitive  relations  after  pooling  had  been 
prohibited  are  shown  in  the  agreements  entered  into  by 
the  members  of  the  Trunk  Line  Association  and  by  the 
roads  which  formed  the  Trans-Missouri  Freight  Associa- 
tion. Article  VIII  of  the  Trunk  Line  Association's  agree- 
ment stipulated  that  "if  the  maintenance  of  uniform  tariffs 
by  all  lines  reduces  the  traffic  of  any  party  below  a  fair 
proportion  of  the  traffic  in  competition,  the  tariffs  may  be 
so  adjusted  from  time  to  time  as  to  protect  such  lines  from 
an  unjust  depletion  of  traffic,  such  adjustment  to  be  made 
under  the  rules  of  this  association."  Likewise  the  ar- 
ticles of  agreement  of  1893  of  the  Central  Traffic  Associa- 
tion, of  which  the  western  connections  of  the  trunk  lines 
were  members,  contained  the  proviso  that  "whenever  any 
party  hereto  feels  that  its  traffic  is  being  unjustly  de- 
pleted, it  shall  represent  the  facts  in  writing  to  the  com- 
missioner, who  shall  promptly  endeavor  to  secure  to  the 
parties   hereto   their   fair   shares   of   traffic."      What   was 

304 


PRESENT  INTERRAILWAY  RELATIONS      305 

to  be  considered  each  road's  "fair  proportion"  of  traffic 
was  not  stated  in  the  agreements,  but  in  all  probability 
there  was  a  tacit  understanding  on  that  question. 

The  Trunk  Line  and  Central  Traffic  Associations  did 
not  succeed  in  federating  in  an  efficient  common  organi- 
zation until  the  close  of  1895.  They  had  a  joint  committee 
before  that  date,  but,  unlike  the  Joint  Executive  Com- 
mittee that  had  existed  from  1879  to  1887,  it  had  very 
little  power.  After  making  unsuccessful  efforts  to  federate 
in  1892  and  in  1894,  they  were  brought  together  in  1895 
by  the  stress  of  circumstances.  Traffic  was  light,  compe- 
tition ruthless,  rates  were  not  maintained,  and  the  securi- 
ties of  their  companies  were  at  a  low  ebb.  The  Joint 
Traffic  Association,  which  took  charge  of  the  joint  and 
competitive  business  of  32  roads  in  the  Trunk  Line  and 
Central  Traffic  Associations  January  1,  1896,  was  managed 
by  a  board  of  nine  men  representing  the  nine  largest  sys- 
tems of  roads.  This  board  was  responsible  to  the  council 
of  the  presidents  of  the  roads,  and  there  was  a  permanent 
board  of  three  arbitrators.  The  board  of  managers  did 
not  prescribe  the  rates  to  be  charged  by  the  several  com- 
panies, but  recommended  the  rates  to  be  fixed  by  each 
road;  but  as  the  articles  of  association  stipulated  that 
"the  failure  to  observe  such  recommendations  shall  be 
deemed  a  violation  of  this  agreement,"  and  as  a  violation  of 
the  contract  was  punishable  by  a  fine  of  $5,000,  or  an 
amount  equal  to  the  gross  receipts  of  the  transaction  con- 
cerned in  the  violation,  the  rates  were  in  reality  determined 
by  the  association.  Likewise  the  traffic  was  apportioned 
among  the  competing  roads  by  the  organization.  There  was 
nothing  specific  in  the  articles  of  agreement  regarding  the 
allotment  of  percentages,  but  in  1896  an  award  of  the 
arbitrators  apportioned  the  traffic  eastbound  from  Chicago 
among  the  ten  interested  roads. 

The  Joint  Traffic  Association  lasted  less  than  three  years, 


306  RAILROAD  TRANSPORTATION 

and  was  brought  to  an  end  by  a  decision  of  the  Supreme 
Court.  Indeed,  the  United  States  commenced  proceedings 
against  the  association  immediately  after  its  activity  began, 
on  the  grounds  that  the  organization  accomplished  pooling, 
and  was  a  violation  of  the  Interstate  Commerce  Act,  and 
that  it  was  a  combination  in  restraint  of  trade,  and  there- 
fore contravened  the  Antitrust  Act  of  July  2,  1890.  In 
the  lower  courts  the  association  won,  but  it  lost  in  the 
Supreme  Court,  which  based  its  decision  mainly  on  the 
antitrust  law,  the  court  in  1897  having  held  that  law  to 
apply  to  railroad  agreements  to  fix  and  maintain  rates. 

The  decision  of  1897  was  in  the  case  of  the  United  States 
against  the  Trans-Missouri  Freight  Association.  This  asso- 
ciation was  organized  April  30,  1889,  and  had  supervision 
over  the  competitive  traffic  of  18  roads  west  of  the  Mis- 
souri River  and  the  95th  meridian.  The  purpose  of  the 
organization  was  "mutual  protection  by  establishing  and 
maintaining  reasonable  rates,  rules,  and  regulations  on  all 
freight  traffic,  both  through  and  local."  In  1892  action 
was  begun  in  the  United  States  Circuit  Court  to  have  the 
association  dissolved  on  the  plea  that  it  violated  the  Anti- 
trust Act.  The  Circuit  Court  and  the  Circuit  Court  of 
Appeals  decided  that  this  act  did  not  prevent  rate  agreements, 
but  the  Supreme  Court,  on  the  22d  of  March,  1897,  held 
to  the  opposite  opinion.  By  the  act  of  July  2,  1890,  "every 
contract,  combination  in  the  form  of  a  trust  or  otherwise, 
or  conspiracy,  in  restraint  of  trade  or  commerce,  among 
the  several  States,  or  with  foreign  nations,  is  hereby  dt 
clared  to  be  illegal."  The  Supreme  Court  held  that  an 
agreement  among  competing  railways  to  maintain  rates — 
although  the  rates  in  question  were  reasonable  and  lawful — 
was  a  restraint  of  trade,  was  contrary  to  public  policy,  and 
was  a  violation  of  the  antitrust  law. 

The  decision  of  the  Supreme  Court  in  the  cases  against 
the  Joint   Traffic   and   the   Trans-Missouri    Freight   Asso- 


PRESENT  INTERRAILWAY  RELATIONS  307 

ciations  restricted  the  possibilities  of  lawful  cooperation 
among  independent  railroads  within  very  narrow  limits. 
Before  1887  competing  railways  had  been  permitted  to 
agree  upon  and  to  unite  in  efforts  to  maintain  rates  and 
fares  on  interstate  traffic  and  to  pool  their  business  or  its 
earnings ;  after  1887  freight  pooling  contracts  were  illegal, 
but  rate  agreements  were  considered  lawful  until  1897, 
when  the  Supreme  Court  held  the  law  of  July  2,  1890,  to 
apply  to  such  agreements  among  railroads.  The  Court  said 
that  concerted  action  either  in  fixing  or  maintaining  charges 
was  unlawful.  The  traffic  associations  lost  their  legal  au- 
thority to  regulate  interrailway  competition  in  1897  and 
1898,  and  the  railroads  were  obliged,  if  they  observed  the 
letter  and  spirit  of  the  law,  either  to  permit  the  return 
of  unrestrained  rivalry  or  to  seek  some  other  method  than 
formal  agreements  for  the  control  of  their  interrelations. 
One  thing  done  by  the  railroads  was  to  consolidate  much 
more  rapidly  than  they  had  ever  done  previously.  The  large 
systems  became  larger  by  the  absorption  of  the  smaller 
ones,  and  the  systems  thus  enlarged  further  strengthened 
their  power  to  act  harmoniously  by  the  "community  of  in- 
terest" principle  of  ownership  and  management. 

For  a  decade  following  1897  the  consolidation  of  rail- 
roads proceeded  with  unprecedented  rapidity.  That  this 
must  have  greatly  changed  interrailway  relations  is  obvi- 
ous. The  causes  of  this  rapid  consolidation  were  in  part 
those  which  operated  generally  throughout  the  business 
world.  In  production,  even  more  strikingly  than  in  trans- 
portation, the  large  organization  supplanted  the  small  one 
in  order  that  business  might  be  expanded,  expenses  reduced, 
and  profits  increased.  There  was,  moreover,  a  close  connec- 
tion between  the  rapidity  of  consolidation  and  the  great 
prosperity  that  prevailed  during  the  decade  following  1897. 
Prosperity  called  for  expansion  in  all  lines  of  business,  and 
supplied  the  surplus  capital  needed  for  the  enlargement  of 


308  RAILROAD  TRANSPORTATION 

plants  and  equipment,  and  for  financing  the  consolidations 
that  accompanied  industrial  expansion.  Prosperity  was  not 
a  cause  of  consolidation,  but  was  a  favoring  condition. 

The  consolidations  of  railroads  were  brought  about  in 
four  ways :  by  purchase,  by  lease,  by  means  of  stock  hold- 
ings, and  by  "community  of  interest"  in  the  management  of 
distinct  companies.  Among  the  conspicuous  instances  of 
purchases  were  the  sale  of  the  Mobile  and  Ohio  to  the 
Southern,  the  Lake  Shore  to  the  New  York  Central,  the 
Central  Railroad  of  New  Jersey  to  the  Reading,  and  the 
Burlington  to  the  Northern  Pacific  and  Great  Northern. 
In  some  cases  the  purchases  were  made  because  of  the  pre- 
vious competition  with  the  line  bought,  and  sometimes  be- 
cause the  acquisition  of  the  line  would  alter  the  conditions  of 
competition  with  some  other  rival  system.  The  purchase  was 
sometimes  effected  by  exchanging  stocks  of  the  purchasing 
company  for  the  securities  of  the  road  bought,  but  more 
often  bonds  were  used  to  make  the  payments.  In  either 
case  there  was  usually  a  large  increase  in  capitalization. 

In  some  States  the  laws  did  not  permit  a  railroad  to  buy 
out  a  competing  line.  In  those  States,  however,  consoli- 
dation by  lease  was  usually  possible.  Most  consolidations 
in  New  England  (notably  the  absorption  of  the  Boston 
and  Albany  by  the  New  York  Central,  and  of  the  Fitch- 
burg  by  the  Boston  and  Maine)  were  by  lease.  The  Great 
Northern  system  and  many  others  were  built  up  by 
lease.  The  tendency  of  late  with  several  systems  has  been 
to  change  leases  into  ownership,  where  the  law  permits  such 
action.  The  advantages  of  securing  control  by  lease  are 
that  no  new  securities  need  to  be  issued,  and  that  if  the 
period  of  the  lease  is  not  made  unduly  long,  there  is  an 
opportunity  from  time  to  time  to  readjust  the  financial  re- 
lations of  the  two  companies.  The  advantages  of  pur- 
chase of  the  acquired  road  are  that  absolute  control  for  all 
time  is  secured,  and  that  the  several  parts  of  the  system 


PRESENT  INTERRAILWAY  RELATIONS  309 

built  up  by  purchase  are  more  firmly  united.  The  system 
becomes  more  of  a  unit. 

An  easier  method  of  securing  control  of  an  independent 
company  than  by  purchase  in  fee,  or  by  leasing,  is  by  the 
purchase  of  enough  of  its  capital  stock  to  be  able  to  control 
the  policy  of  its  management.  A  bare  majority  of  the 
stock  is  all  that  need  be  purchased,  and  often  a  minority 
share  will  suffice,  because  of  the  voting  efficiency  of  a 
compact  holding.  The  Pennsylvania  had  virtual  control  of 
the  Baltimore  and  Ohio  when  $40,000,000  of  the  $105,- 
000,000  of  the  stock  had  been  acquired.  The  Union  Pacific 
could  dictate  the  policy  of  the  Southern  Pacific  by  buying 
$85,000,000  of  $192,000,000  of  stock.  The  plan  of  con- 
solidating railway  interests  by  stock  holdings  has  long  been 
followed.  In  1892  nearly  25  per  cent  of  the  railroad  stock 
was  owned  by  the  railway  companies  themselves ;  the  finan- 
cial depression  following  1893  reduced  the  corporate  hold- 
ings to  less  than  one-fifth  of  the  total  in  1897,  but  in  the 
three  succeeding  years  they  rose  over  $400,000,000,  and 
again  became  about  one-fourth  of  the  entire  amount  of 
stocks.  On  December  30,  191 8,  nearly  one-third  of  the 
railway  stock  outstanding,  or  $2,755,836,845  out  of  $9,055,- 
117,036,  was  held  by  railway  companies.  In  other  words, 
in  the  consolidations  carried  out  since  1897  much  use  has 
been  made  of  the  old  method  of  stock  purchases. 

The  fourth  method  of  securing  unity  of  control  is 
called  "community  of  interest,"  by  which  is  meant  mak- 
ing some  of  the  directors  or  officials  of  one  company 
members  of  the  boards  of  directors  of  other  companies. 
Usually,  but  not  always,  there  is  also  a  community  of 
ownership,  the  principal  owners  of  one  company  becom- 
ing financially  interested  in  other  and  rival  roads — that 
is,  the  "community  of  interest"  usually  involves  commu- 
nity both  in  ownership  and  in  management.  This  plan 
of  securing  harmonious  action  among  rival  interests   was 


310  RAILROAD  TRANSPORTATION 

well  illustrated  in  the  construction  of  the  board  of  direc- 
tors of  the  Northern  Pacific  in  1901.  The  Great  Northern 
and  Union  Pacific  were  each  trying  to  secure  control  of  the 
Northern  Pacific.  The  struggle  also  involved  the  control  of 
the  Burlington  system,  and  thus  concerned  the  interests  of 
the  Chicago  and  Northwestern  system,  a  competitor  of  the 
Burlington  having  close  traffic  relations  with  the  Vander- 
bilt  or  New  York  Central  system.  The  Chicago,  Milwaukee 
and  St.  Paul,  another  competitor  of  the  Burlington,  and 
a  road  closely  connected  with  the  Pennsylvania  system,  was 
also  interested  in  the  outcome  of  the  contest.  The  rival 
parties  placed  their  interests  in  the  hands  of  J.  P.  Morgan, 
who  settled  the  struggle  by  placing  on  the  directorate  of 
the  Northern  Pacific  the  president  of  the  Great  Northern, 
the  chairman  of  the  executive  committee  of  the  Union 
Pacific,  a  director  of  the  Chicago,  Milwaukee  and  St.  Paul, 
a  director  of  the  Chicago  and  Northwestern,  and  a  vice 
president  of  the  Pennsylvania  Railroad. 

When  the  Pennsylvania  purchased,  and  while  it  held,  a 
controlling  interest  in  the  Chesapeake  and  Ohio,  the  board 
of  directors  was  so  changed  as  to  make  place  not  only  for 
certain  officials  of  the  Pennsylvania  road,  but  also  for  rep- 
resentatives of  the  New  York  Central  system,  which  was 
invited  to  share  in  the  new  management  of  the  Chesapeake 
and  Ohio.  The  community  of  interest  policy  was  so  gen- 
erally followed  after  1898  that  most  of  the  prominent  rail- 
road directors  and  capitalists  became  members  of  several 
boards  and  financially  interested  in  many  companies.  In 
1905  the  majority  of  the  boards  of  directors  of  all  the 
railroads  between  the  north  Atlantic  seaports  and  the  Miss- 
issippi River  consisted  of  only  39  individuals.  In  1912  an 
investigation  revealed  that  13  men  controlled  34  important 
transportation  companies  in  trunk  line  territory,  and  they 
also  held  a  large  number  of  directorships  in  various  indus- 
trial and  banking  corporations.    After  191 3,  partly  because 


PRESENT  INTERRAILWAY  RELATIONS  311 

of  the  pressure  of  public  opinion  and  partly  because  of 
legislation  there  was  a  marked  tendency  toward  the  disso- 
lution of  communities  of  interest,  though  this  occurred 
more  in  connection  with  banking  and  industrial  corpora- 
tions than  with  railroad  companies. 

While  the  consolidation  of  competing  railroads  and  the 
organization  of  communities  of  interest  tended  to  prevent 
any  renewal  of  destructive  rate  wars  after  the  decisions 
of  the  Supreme  Court  in  the  Joint  Traffic  Association  and 
the  Trans-Missouri  Freight  Association  cases,  railway  com- 
bination was  not  carried  to  the  point  of  eliminating  all 
competition.  Only  the  combination  of  all  the  railroads  in 
the  country  into  one  huge  system  would  have  brought  com- 
petitive rivalry  to  an  end.  In  numerous  instances  rival 
financial  interests  refused  to  combine.  Moreover,  early  in 
the  twentieth  century  the  Sherman  Law  was  employed 
effectively  to  prevent  the  further  development  of  railroad 
combination,  and  even  to  break  up  some  of  the  combinations 
already  organized.  The  Northern  Securities  Company,  by 
means  of  which  the  Harriman  and  the  Hill  interests  tried 
to  pool  their  properties  after  the  dramatic  contest  for  the 
control  of  the  Northern  Pacific,  was  held  in  1904  to  be  a 
type  of  combination  forbidden  by  the  Sherman  Law.  This 
law  was  later  used  to  compel  the  dissolution  of  the  Union 
Pacific-Southern  system  and  the  New  Haven  system. 

While  the  combination  movement  was  in  progress  and 
after  it  had  reached  its  highest  stage  of  development  the 
railroad  companies  were  faced  with  the  problem  of  con- 
trolling rates  on  competitive  traffic  in  many  sections  of 
the  country.  Since  there  was  no  legal  method  by  which 
rate  agreements  could  be  formally  adopted,  the  carriers  con- 
trived to  bring  about  the  necessary  agreements  in  an  infor- 
mal manner.  These  agreements  were  maintained  through 
the  traffic  associations. 

The  traffic  associations   were  not  abandoned  after  the 


312  RAILROAD  TRANSPORTATION 

adverse  decisions  of  the  Supreme  Court  on  the  question  of 
formal  agreements.     Their  articles  of  agreement  were  so 
changed  as  to  make  them  conform  to  the  law,  that  is,  the 
functions   of   making  and   maintaining   charges,   were,   ac- 
cording to  the  revised  articles  of  association,  left  with  the 
individual  companies.    But  while  the  associations  nominally 
and  technically  surrendered  these  functions,  as  a  matter  of 
fact  they  continued  to  exercise  a  large  measure  of  author- 
ity  in   the   determination    of    rates   on    competitive    traffic. 
Railways  must  cooperate  in  classifying  traffic,  in  working 
out  their  schedules  of  rates,  and  in  fixing  joint  and  com- 
petitive charges  exacted   for  the  performance  of  the  vast 
and  intricate  service  of  transportation.     Were   each  com- 
pany to  act  solely  for  itself  and  without  regard  to  the  classi- 
fications being  followed  and  the  charges  being  made  by  the 
railroads  serving  other  centers  of  population  and  regions 
of  production,  the  result  would  be  intolerable  discrimina- 
tions and  business  conditions  little  less  than  chaotic.     In- 
deed, it  would  be  impossible  for  the  railroads  to.  observe  the 
Interstate  Commerce  Act  or  any  other  law  requiring  them 
to  exact  of  all  persons  and  all  places  only  reasonable  and 
just  fares  and  rates.    And  so,  while  each  railroad  was  sup- 
posed to  prescribe  its  own  charges,  its  officials  conferred 
with  those  of  other  lines  regarding  joint  and  competitive 
business  and  cooperated  with  them  in  making  classifications 
and  adjusting  rates.     The  meetings  of  the  traffic  associa- 
tions afforded  the  opportunity  for  such  cooperation.     These 
associations,  moreover,  as   formerly,  concerned  themselves 
with  numerous  matters,  other  than  pooling  and  rate  agree- 
ments, affecting  the  interrelations  of  railways.     The  infor- 
mal understandings  reached  at  the  meetings  of  these  traf- 
fic associations  were  generally  accepted  by  the  constituent 
companies.     The  Interstate   Commerce  Commission  in  its 
report   for    1901    stated   "that   the   decision   of  the   United 
States    Supreme    Court    in    the    Trans-Missouri    case    and 


PRESENT  INTERRAILWAY  RELATIONS  313 

the  Joint  Traffic  Association  case  has  produced  no  practical 
effect  upon  the  railway  operations  of  the  country.  Such 
associations,  in  fact,  exist  now  as  they  did  before  those 
decisions,  and  with  the  same  general  effect."  It  should  be 
added,  however,  that  the  associations  were  able  to  pro- 
duce "the  same  general  effect"  during  a  period  of  business 
prosperity.  It  is  not  at  all  certain  that  the  recommenda- 
tions of  the  associations  as  to  rates  would  have  been  car- 
ried out  had  every  road  been  struggling  to  the  uttermost 
to  increase  its  tonnage. 

In  1910  it  seemed  for  a  time  that  the  traffic  associations 
were  to  be  subjected  to  attack  by  the  Federal  Department 
of  Justice.  The  western  trunk  line  railroads  made  a  con- 
certed effort  to  advance  their  freight  charges.  The  Depart- 
ment of  Justice  obtained  a  temporary  injunction  in  the 
Federal  courts  to  prevent  the  new  schedules  from  going 
into  effect.  Subsequently  the  schedules  were  withdrawn 
and  the  suits  discontinued.  A  successful  prosecution  might 
have  resulted  in  a  condemnation  of  the  traffic  associations. 
The  Interstate  Commerce  Act  was  amended  to  give  the 
Commission  power  to  suspend  proposed  changes  in  rates 
pending  an  investigation  of  their  reasonableness.  This  leg- 
islation deprived  the  railroads  of  the  power  to  make  undue 
and  unjust  increases  in  rates,  without  disturbing  the  or- 
ganizations through  which  they  effected  their  informal 
agreements  with  respect  to  the  charges  on  competitive  traf- 
fic. Though  cooperation  in  rate  making  was  illegal,  no 
action  was  taken  against  the  carriers.  Notwithstanding  the 
fact  that  the  law  of  1887  was  based  primarily  upon  the 
theory  that  the  carriers  should  be  forced  to  compete  with 
one  another  in  establishing  their  charges,  there  was  a  tacit 
recognition  of  the  fact  that  such  competition  would  result 
in  injury  both  to  the  railroads  and  to  the  public,  and  no 
effort  was  made  to  carry  out  the  letter  of  the  law. 

Some  effort  was  made  to  change  this  anomalous  situa- 


.'314  RAILROAD  TRANSPORTATION 

tion.  An  attempt  was  made  to  include  in  the  railway  rate 
act  of  1 910  a  clause  that  would  have  permitted  the  car- 
riers to  enter  into  formal  rate  agreements,  subject  to  the 
approval  of  the  Interstate  Commerce  Commission,  but  with- 
out success.  Had  such  legislation  been  enacted  it  would 
have  removed  all  doubt  as  to  the  legal  status  of  the  infor- 
mal understandings  reached  through  the  medium  of  the 
traffic  associations.  By  the  time  the  Transportation  Act 
of  1920  was  passed,  there  had  been  a  decided  change  in  the 
attitude  of  Congress  with  respect  to  the  problem  of  rail- 
road cooperation  in  rate  making.  In  this  law  the  neces- 
sity of  cooperation  was  at  last  recognized.  The  fifth  sec- 
tion of  the  Interstate  Commerce  Act — the  antipooling  sec- 
tion— was  amended.  Railroad  corporations  may  now  legally 
enter  into  such  pooling  agreements  as  may  receive  the 
sanction  of  the  Interstate  Commerce  Commission.  The 
Commission  has  taken  action  under  this  section  in  giving 
its  approval  to  the  form  of  contract  adopted  by  the  rail- 
roads and  the  American  Railway  Express  Company.  This 
contract,  which  was  described  in  the  chapter  dealing  with 
the  express  service,  provides  for  the  division  of  part  of 
the  earnings  of  the  express  company  among  the  carriers 
of  certain  districts. 

The  Transportation  Act  further  recognizes  the  undesir- 
ability  of  rate  wars  between  rival  carriers  by  giving  the 
Interstate  Commerce  Commission  the  power  to  name  min- 
imum as  well  as  maximum  rates.  With  this  power  the 
Commission  can  bring  any  destructive  rate  war  to  an  end. 
Another  evidence  of  a  change  in  the  spirit  of  Federal  rail- 
road legislation  appears  in  that  part  of  the  amended  fifth 
section  of  the  Interstate  Commerce  Act,  which  directs  the 
Interstate  Commerce  Commission  to  devise  a  plan  for  the 
consolidation  of  the  railroads  into  a  limited  number  of 
systems.  Though  these  systems  must  be,  as  far  as  possible, 
competitive  with  regard  to  service,  they  must  nevertheless 


PRESENT  INTERRAILWAY  RELATIONS  315 

be  "so  arranged  that  the  cost  of  transportation  as  between 
competitive  systems  and  as  related  to  the  value  of  proper- 
ties through  which  the  service  is  rendered  shall  be  the  same, 
so  far  as  practicable,  so  that  these  systems  can  employ  uni- 
form rates  in  the  movement  of  competitive  traffic  and  un- 
der efficient  management  earn  substantially  the  same  rate 
of  return  upon  the  value  of  their  respective  railway 
properties." 

Though  the  law  now  permits  pooling  of  traffic  or  earn- 
ings, it  is  doubtful  if  the  railroads  attempt  to  enter  gener- 
ally into  pooling  agreements.  The  pool  was  never  an  end 
in  itself,  but  merely  a  means  to  an  end.  It  was  a  device  to 
prevent  the  violation  of  rate  agreements.  The  possibility 
of  a  violation  of  the  rate  agreements  which  carriers  now 
maintain  is  so  remote  that  it  is  exceedingly  doubtful  that 
it  will  ever  be  necessary  for  them  to  resort  to  pools  for  the 
purpose  of  controlling  competition.  The  traffic  associa- 
tions have  functioned  well,  and  there  is  little  reason  to 
believe  that  their  effectiveness  cannot  be  relied  upon  in  the 
future.  If  compulsory  consolidation  of  railroads  should 
eventually  be  provided  for,  the  need  for  the  organization  of 
pools  will  be  even  less  likely  to  occur. 

There  are  four  classes  of  railroad  traffic  associations, 
each  performing  distinct  services.  The  first  class  includes 
the  large  organizations  of  which  all  railroads  in  a  wide 
section  of  country  are  members.  The  second  class  com- 
prises associations  limited  to  a  small  territory,  usually  a 
single  state.  The  third  class  consists  of  local  bureaus  in- 
terested in  the  traffic  of  a  single  city  and  its  immediately 
surrounding  country ;  while  the  fourth  type  of  organiza- 
tion has  to  do  with  one  or  more  specific  kinds  of  traffic. 

In  the  main  the  existing  freight  and  passenger  associa- 
tions are  reorganized  forms  of  those  that  were  established 
in  the  seventies  and  eighties.  While  the  railroads  were 
being  operated  by  the  Government  during  the  World  War 


316  RAILROAD  TRANSPORTATION 

the  activities  of  the  traffic  associations  were  discontinued. 
After  the  resumption  of  private  operation  the  associations 
reorganized,  with  some  changes  as  to  membership  and  ter- 
ritorial jurisdiction.  The  larger  organizations  (those  of 
the  first  type)  may  be  grouped  according  to  the  territorial 
classification  of  railroads  already  presented,  (i)  The  New 
England  roads  have  the  New  England  Passenger  Associa- 
tion and  the  New  England  Freight  Association,  the  latter 
organization  possessing  only  a  few  limited  functions.  (2) 
The  Trunk  Line  Association,  with  the  same  membership 
as  in  the  past,  is  made  up  chiefly  of  the  powerful  trunk 
line  companies  operating  east  of  Buffalo,  Erie,  Pittsburgh 
and  Wheeling.  This  association  has  a  passenger  depart- 
ment with  all  the  functions  which  a  separate  body  would 
have.  West  from  Buffalo,  Erie  and  Pittsburgh  to  Chicago 
and  St.  Louis  is  the  territory  of  the  Central  Freight  Associ- 
ation and  the  Central  Passenger  Association.  The  railways 
in  the  eastern  group  also  maintain  in  connection  with  the 
eastern  lines  south  of  the  Potomac  River  the  Eastern  Rail- 
road Association,  which  is  concerned  primarily  with  the 
traffic  of  the  Atlantic  States.  (3)  South  of  the  Ohio  and 
the  Potomac  and  east  of  the  Mississippi  are  the  Southern 
Freight  Rate  Association  and  the  Southeastern  Passenger 
Association.  These  organizations  cover  the  field  once  occu- 
pied by  the  Southern  Railway  and  Steamship  Association. 
(4)  In  the  territory  southwest  of  St.  Louis  and  west  of 
the  Mississippi  River  is  the  Southwestern  Freight  Bureau 
and  the  Southwestern  Passenger  Association.  (5)  The 
region  north  of  this  territory  and  west  of  the  Mississippi 
River  and  Lake  Michigan  to  the  Rocky  Mountain  is  occu- 
pied by  the  Western  Trunk  Line  Committee  and  the  West- 
ern Passenger  Association.  (6)  The  traffic  to  and  from 
the  Pacific  coast  is  supervised  by  the  Transcontinental 
Freight  Bureau  and  the  Transcontinental  Passenger  Asso 
ciation.     In  each  of  these  various  sections  there  are  several 


PRESENT  INTERRAILWAY  RELATIONS  317 

other  associations,  but  they  are  less  influential  than  the 
associations  mentioned. 

It  is  through  the  work  of  these  associations  that  the 
joint  arrangements  concerning  rates  and  traffic  are  made 
and  the  excesses  which  formerly  characterized  railway  com- 
petition are  avoided.  According  to  the  articles  of  organiza- 
tion of  the  Central  Freight  Association  its  purposes  are, 
"To  enable  the  members  to  confer,  advise,  and  cooperate 
with  each  other  and  with  other  roads  upon  the  subjects  of 
divisions  of  through  rates,  statistics,  classifications,  rules, 
regulations  and  inspection,  and  to  secure  to  the  members  the 
interchange  and  promulgation  of  authentic  information  in 
regard  to  the  traffic  and  tariffs  and  rates  of  the  respective 
parties."  It  is  through  the  dissemination  of  "authentic  in- 
formation" that  harmonious  policies  with  regard  to  rates 
secure  adoption.  The  members  of  the  association  agree  "to 
send  to  the  chairman  two  copies  of  all  local  and  joint  state 
and  interstate  tariffs  of  rates  and  of  charges  therein  .  .  . 
at  the  time  of  making,  issuing,  or  filing  the  same  with 
the  Interstate  Commerce  Commission."  Rate  committees 
of  the  various  associations  discuss  in  conference  whatever 
changes  may  be  suggested  in  the  rate  structures  of  their 
territories. 

The  chief  executive  officer  of  a  traffic  association  usually 
bears  the  title  of  chairman,  and  his  chief  duties  are  to  in- 
form all  members  of  any  proposition  made  by  an  individual 
member  concerning  changes  in  rates  or  traffic  arrangements, 
to  interpret  the  articles  of  agreement,  to  compile  and  issue 
statistics  and  joint  publications  including  tariffs,  and  to 
preside  at  the  regular  and  special  meetings.  Permanent 
committees  are  maintained  by  some  associations  to  inspect 
the  weights,  classifications  and  rates  applying  to  traffic  on 
the  member  railroads.  The  expenses  of  an  association  are 
shared  jointly  by  the  members  in  a  manner  agreed  upon. 
At  meetings  of  the  association  or  its  committees,  the  mem- 


318  RAILROAD  TRANSPORTATION 

ber  railroad  is  represented  by  a  designated  official,  usually 
a  traffic  manager  or  a  general  freight  or  passenger  agent. 

There  are  many  other  railway  associations  in  the  United 
States  in  addition  to  the  traffic  associations.  These  organ- 
izations exist  primarily  for  the  purpose  of  securing  harmony 
of  practice  and  policy  among  the  carriers.  Some  of  these 
are  associations  of  technical  officials,  like  surgeons,  master 
mechanics,  engineers  of  maintenance  of  way,  and  account- 
ing officers.  In  other  organizations  the  membership  is  made 
up  of  administrative  officers,  such  as  general  baggage 
agents,  general  passenger  agents,  railroad  superintendents, 
and  other  executives.  Virtually  all  the  railroads  of  the 
United  States  are  members  of  the  American  Railway  Asso- 
ciation. This  powerful  and  influential  organization  has 
done  much  to  standardize  railway  methods  in  all  depart- 
ments of  the  service.  It  maintains  a  number  of  perma- 
nent divisions  and  committees,  each  of  which  undertakes 
the  scientific  investigation  of  transportation  problems  of  a 
technical  nature.  The  Association  of  Railway  Executives, 
organized  in  191 2,  includes  in  its  membership  the  chief 
executive  officers  of  all  the  large  railroads  of  the  United 
States.  It  was  organized  originally  to  represent  the  car- 
riers on  matters  concerning  the  Federal  regulation  of  rail- 
roads. While  Congress  was  deliberating  upon  the  provi- 
sions of  the  Transportation  Act  of  1920  the  Association 
submitted  a  series  of  proposals  with  respect  to  railroad 
legislation.  Since  the  enactment  of  that  law  the  Associa- 
tion has  given  its  attention  to  the  various  problems,  con- 
nected primarily  with  rates  and  the  wages  of  railroad  em- 
ployees, which  came  before  the  carriers  after  the  termina- 
tion of  Government  control. 

Corresponding  to  the  traffic  associations  of  the  railroads 
are  a  number  of  shippers'  organizations,  the  purpose  of 
which  is  to  look  after  the  interests  of  those  who  use  the 
railroads.     These  organizations  present  the  shippers'  views 


PRESENT  INTERRAILWAY  RELATIONS  319 

I 
on  questions  of  legislation,  and  represent  the  shippers  in 

any  controversies  which  may  arise  over  railroad  rates  and 
services.  The  Chambers  of  Commerce  of  most  cities  have 
traffic  managers  who  look  after  the  transportation  inter- 
ests of  their  respective  cities.  The  largest  and  most  influ- 
ential traffic  organization  of  shippers  is  the  National  Indus- 
trial Traffic  League,  which  represents  various  industrial 
interests  all  over  the  United  States.  This  organization  has 
taken  a  prominent  part  in  the  formulation  of  the  railroad 
policy  of  the  country,  and  it  has  had  much  to  do  with  the 
standardization  of  rules  and  regulations  governing  various 
railroad  practices.  It  endeavors  to  cooperate  with  the  rail- 
road organizations  to  bring  about  the  amicable  settlement 
of  differences  between  carriers  and  shippers.  Since  the 
enactment  of  the  Transportation  Act  the  National  Indus- 
trial Traffic  League  and  the  American  Railway  Association 
have  maintained  joint  committees  to  consider  railroad  rate 
problems  in  the  different  traffic  districts  of  the  United 
States.  The  work  of  these  committees  has  done  much  to 
promote  good  feeling  among  the  railroads  and  their  patrons. 

REFERENCES 

Report  of  the  Industrial  Commission,  XIX,  304-348  (1902). 

Langstroth  and  Stilz.  "Railway  Cooperation,"  in  Publica- 
tions of  the  University  of  Pennsylvania  (1899). 

Hadley,  A.  T.  Railroad  Transportation,  chap,  vi,  "Competi- 
tion and  Combination  in  Practice"  (1885). 

Cooley,  T.  M.  "Popular  and  Legal  View  of  Traffic  Pooling," 
in  Railway  Review,  January  8,  1887;  republished  in  Com- 
pendium of  Transportation  Theories,  edited  by  C.  C.  Mc- 
Cain (1893). 

Knapp,  M.  A.  "Some  Observations  on  Railroad  Pooling,"  in 
Annals  of  the  American  Academy  of  Political  and  Social 
Science,  VIII,  1896 

Newcomb,  H.  T.    Railway  Economics,  120-142   (1898). 


320  RAILROAD  TRANSPORTATION 

Ripley,  W.  Z.     (ed.)   Trusts,  Pools  and  Combinations  (1905). 

[A  collection   of  papers  and  court  decisions.] 
.      (ed.)    Railway  Problems,  chaps,  i,  ii  and  iv    (1907). 

[A  collection  of  papers  and  court  decisions.] 

.     Railroads:  Rates  and  Regulation   (1912). 

Railroads:  Finance  and  Organization  (1915). 


Interstate  Commerce  Commission.  Intercorporate  Relation- 
ships of  Railways  in  the  United  States  as  of  June  50,  ipo6 
(Special  Report  No.  1,  1908). 

The  literature  on  railroad  combinations  and  pooling  is  volumi- 
nous, a  brief  but  good  bibliography  of  which  is  contained 
in  the  volume  by  Langstroth  and  Stilz,  Railway  Co- 
operation. The  references  above  cited  present  the  history 
and  theory  of  the  subject. 


CHAPTER  XX 

MONOPOLY    AND    COMPETITION    IN    THE   RAILROAD 

SERVICE 

Railroad  corporations  must  be  large  and  must  cooperate,  321.  Scope 
of  railroad  monopoly  must  be  understood  in  considering 
charges  and  government  regulation,  323.  What  is  meant  by 
monopoly,    323.      The    oil    business    an    example    of    monopoly, 

324.  The  railroad  business  has  not  been  a  complete  monopoly, 

325.  Railroad  cooperation  is  of  tvro  kinds;  the  attitude  of  the 
law  toward  each  kind,  326.  Railroad  competition  is  of  two 
kinds,  327.  Railroad  competition  is  not  confined  to  junction 
points,  328.  The  competition  of  markets,  328.  Influence  of 
competition  upon  local  rates,  330.  The  monopoly  of  the  railroad 
is  only  partial,  332.  Government  regulation  of  a  partial  mo- 
nopoly may  be  necessary,  332.  The  term  natural  monopoly 
not  strictly  accurate,  333.    References,  333. 

The  railroad  service  of  the  present  and  future  is  one 
that  must  be  performed  by  large  corporations,  among 
which  cooperation  is  necessary.  Not  only  in  the  man- 
agement of  their  joint  traffic,  but  quite  as  much  in  the 
regulation  of  their  competitive  business,  experience  shows 
that  the  railroad  companies  must  work  together  if  the 
property  invested  in  railroads  is  to  be  protected  against 
"ruinous  competition,"  and  if  the  public  is  to  receive  an 
adequate  service  at  rates  that  do  not  unjustly  discriminate 
between  persons,  places,  or  classes  of  traffic.  In  spite  of 
State  and  Federal  laws  to  enforce  competition  among  rail- 
roads, and  possibly  to  some  extent  because  of  those  laws, 
the  companies  have  sought  unceasingly  to  increase  the  effi- 
ciency of  their  cooperation. 

321 


322  RAILROAD  TRANSPORTATION 

The  forces  which  control  industrial  organization,  whether 
in  transportation  or  in  manufacturing,  have  operated  in 
recent  years  to  bring  about  extensive  consolidations,  and 
interrailway  rivalry  has  in  a  large  measure  been  suppressed 
by  consolidation,  by  community  of  interest,  or  by  informal 
agreements  through  which  harmonious  cooperation  can  be 
secured  among  nominally  competing  lines.  Had  the  process 
of  territorial  consolidation  not  been  checked  it  is  extremely 
probable  that  the  great  railroad  companies  of  the  United 
States  would  eventually  have  accomplished  a  complete  divi- 
sion of  the  field.  Though  the  process  of  railroad  combi- 
nation was  checked,  the  consolidations  which  were  effected 
did  much  to  overcome  competition,  and  where  actual  con- 
solidation did  not  take  place  competition  among  lines  serv- 
ing the  same  district  has  been  brought  under  control.  It 
now  seems  probable  that  railroad  consolidation  will  be 
favored  by  legislation  rather  than  impeded,  but  whether 
a  compulsory  consolidation  law  is  enacted  or  not  one 
may  assume  with  reasonable  certainty  that  the  days  of  un- 
restricted competition  among  rival  railway  lines  are  en- 
tirely past. 

To  what  extent  have  the  spread  of  harmonious  relations 
among  railroads  serving  the  same  territory  and  the  progress 
of  actual  consolidation  of  competing  lines  established  mo- 
nopoly conditions  in  the  transportation  service?  This  is  a 
question  to  which  a  clear  answer  is  desired  by  every  thought- 
ful person.  Private  monopoly  is  abhorrent  to  our  sense  of 
right.  It  runs  counter  both  to  our  feelings  of  what  is 
just  and  to  the  legal  principles  in  which  those  feelings  find 
expression.  If  the  cooperation  of  independent  railroads 
by  pooling  or  otherwise,  or  the  consolidation  of  their  man- 
agement by  means  of  a  community  of  interest  or  by  the  ab- 
sorption of  the  weaker  lines  by  the  stronger  systems,  confers 
monopoly  powers  of  an  oppressive  character  upon  the  cor- 
porations which  thus  unite,  the  protection   of   the  public 


MONOPOLY  AND  COMPETITION  323 

interests  demands  either  that  the  cooperation  or  consolida- 
tions should  be  prevented,  or,  if  their  prohibition  is  not 
possible,  that  the  relations  of  the  railroad  companies  with 
each  other  and  with  the  public  should  be  so  regulated  as 
to  limit  the  exercise  of  monopoly  powers.  The  scope  and 
limitations  of  monopoly  and  competition  in  railway  man- 
agement must  be  understood  and  kept  in  mind  in  consider- 
ing railroad  charges  and  the  questions  of  government  regu- 
lation. 

It  is  customary  for  those  who  have  not  studied  the  sub- 
ject carefully  to  associate  monopoly  with  large  corpora- 
tions or  combinations  of  capital,  and  to  assume  that  the 
consolidation  of  independent  companies  is  brought  about 
mainly  to  establish  a  monopoly.  As  a  matter  of  fact,  the 
concentration  of  the  control  either  of  capital  or  of  pro- 
ductive forces  may  create  a  monopoly  or  it  may  not ;  and 
if  monopoly  powers  are  secured,  they  may  be  either  com- 
plete or  only  partial. 

The  two  leading  motives  for  the  substitution  of  the  large 
railroad  or  industrial  corporations  for  the  smaller  ones  are 
(i)  to  reduce  the  expenses  by  means  of  the  greater  economy 
of  doing  business  on  a  large  scale ;  and  (2)  to  secure,  if  pos- 
sible, the  power,  either  absolute  or  partial,  of  fixing  the 
prices  paid  by  the  purchasing  public.  The  first  of  the  two 
purposes  is  always  alleged  to  be  the  one  sought  for  by  those 
concerned  in  any  particular  consolidation,  and  usually  ex- 
penses can  be  cut  down  by  placing  several  small  con- 
cerns under  one  control,  although  this  is  not  always  pos- 
sible, because  the  supervision  of  the  affairs  of  a  large 
business  may  not  be  so  close  and  so  personal  as  can  those 
of  a  small  undertaking. 

Any  producer  or  carrier,  whether  an  individual,  a  cor- 
poration, or  a  combination  of  corporations,  who  has  the 
power  to  fix  the  price  which  the  buyer  must  pay,  possesses 
a  monopoly.     The  monopoly  power  is  the  power  to  fix  the 


324  RAILROAD  TRANSPORTATIOX 

price.  An  individual  or  a  combination  having  full  power 
to  fix  the  purchaser's  price  possesses  a  complete  monopoly. 
In  some  businesses  the  producer's  power  is  absolute  only  in 
parts  of  his  business ;  in  other  parts  the  forces  which  fix 
prices  are  beyond  his  control ;  such  a  producer  has  a  partial 
monopoly.  But  whether  the  monopoly  is  partial  or  com- 
plete, the  essence  of  monopoly  is  the  power  to  control  the 
price ;  and  a  business  enterprise,  whether  large  or  small, 
is  monopolistic  to  the  extent  that  those  who  manage  it 
have  control  over  the  prices  which  the  buyer  must  pay. 

In  a  certain  sense  the  producer  never  has  the  sole 
power  to  fix  the  price,  even  though  he  may  be  the  only 
person  from  whom  the  commodity  or  service  in  his  con- 
trol can  be  secured,  because  he  must  always  consult  the 
nature  of  the  purchasers'  wants  and  their  ability  to  pay. 
If  the  possessor  of  a  monopoly  charges  more  than  any 
buyer  is  willing  to  pay,  no  sales  will  be  made ;  if  the  prices 
are  fixed  higher  than  any  considerable  percentage  of  pos- 
sible buyers  can  afford  to  give,  the  market  will  be  largely 
restricted.  This  is  equivalent  to  saying  that  the  consumers 
or  users  are  the  ones  who  fix  the  limit  beyond  which 
charges  cannot  go ;  but  if  all  or  the  larger  share  of  the 
supply  required  by  purchasers  can  be  obtained  only  from 
one  person  or  combination  of  producers,  those  who  sell 
can  compel  those  who  buy  to  pay  all  they  are  willing  to 
give  rather  than  go  without  the  commodity  or  service 
desired.  The  price  fixed  under  such  conditions  is  a  mo- 
nopoly price  pure  and  simple.  Those  who  sell  charge  what 
they  think  will  yield  them  the  maximum  profits  on  their 
total  business. 

A  familiar  example  of  a  monopoly  is  that  of  the  Stand- 
ard Oil  interests.  This  organization  does  not  own  or 
control  all  the  oil-wells,  but  owning  a  majority  of  the  wells 
or  of  the  pipe  lines  from  the  wells,  it  is  able  effectually  to 
control  the  oil  market  of  the  country.     The  price  which 


MONOPOLY  AND  COMPETITION  325 

consumers  must  pay  for  petroleum  is  determined  by  the 
Standard  Oil  interests  and  the  prices  are  presumably  those 
that  will  yield  largest  profits.  In  fixing  the  price  of  oil, 
however,  the  market  has  to  be  carefully  studied.  The 
amount  of  oil  used  is  largely  affected  by  the  price,  and 
this  is  so  not  only  because  if  prices  are  made  unduly  high 
men  will  forego  in  part  the  advantages  and  pleasure  of 
artificial  light,  but  also  because  the  people  who  live  in 
towns  and  cities  usually  have  the  option  of  using  gas  or 
electricity  instead  of  petroleum  oil.  This  explains  why 
the  price  of  illuminating  oil  steadily  declined  for  many 
years,  when  at  the  same  time  the  Standard  Oil  Company 
was  increasing  its  control  of  the  production  and  sale  of 
petroleum. 

To  determine  whether  a  railroad  corporation,  large  or 
small,  possesses  a  monopoly,  and  if  so  whether  its  mo- 
nopoly is  absolute  or  partial,  it  is  necessary  to  ascertain 
whether  and  to  what  extent  the  railway  companies  acting 
singly  or  in  combination  can  fix  the  rates  and  fares  paid 
by  the  public.  If  those  who  manage  our  railroads  can 
fix  the  charges  to  be  paid  for  their  services,  subject  only 
to  the  ability  and  willingness  of  the  public  to  pay  the 
charges,  then  the  railway  service  is  a  complete  monopoly. 
If,  however,  the  rates  and  fares  are  subject  to  forces  which 
the  railroad  companies  cannot  control,  even  when  they 
act  in  harmony — forces  which  keep  the  charges  much  be- 
low the  ability  of  the  purchaser  to  pay,  and  in  many  in- 
stances below  what  he  would  pay  rather  than  go  without 
the  service  desired — then  the  railroad  business  is  not  a 
complete  monopoly;  it  is  subject  to  competitive  forces 
which  prevent  it  from  becoming  more  than  a  partial  mo- 
nopoly. One  purpose  of  the  discussion  of  interrailway  re- 
lations in  the  three  preceding  chapters  was  to  show  that 
the  railways  have  never  been  able  in  the  past  to  do  more 
than    restrain   or    regulate   competition ;    they   have    never 


326  RAILROAD  TRANSPORTATION 

succeeded  in  eliminating  competition  among  themselves. 
Their  monopoly  has  never  been  more  than  partial. 

In  considering  the  extent  to  which  the  railroad  service 
is  a  monopoly  and  to  what  extent  it  is  and  will  continue 
to  be  competitive,  attention  must  be  given  to  the  effect 
of  competition  upon  the  charges  fixed  on  the  railroads  which 
are  separately  owned  but  whose  owners  cooperate  by  pool- 
ing or  otherwise,  and  also  the  effect  upon  the  charges 
fixed  on  the  roads  that  have  been  consolidated  into  a  large 
system  or  a  group  of  systems  serving  a  considerable  sec- 
tion of  the  country.  The  two  questions  to  be  answered 
are :  How  does  competition  affect  the  charges  of  cooperating 
roads  and  to  what  extent  can  the  consolidation  of  com- 
peting lines  or  other  methods  of  securing  unified  action 
eradicate  competition  in  the  transportation  service? 

There  are  two  kinds  of  cooperation :  that  of  connecting 
roads  and  that  of  competing  lines.  The  necessity  and 
desirability  of  the  joint  arrangements  for  expediting  through 
traffic  are  recognized  by  everybody,  and  the  Interstate  Com- 
merce law  requires  the  railroad  companies  to  "afford  all 
reasonable,  proper,  and  equal  facilities  for  the  interchange 
of  traffic  between  their  respective  lines,"  and  the  same  law 
prohibits  all  devices  intended  to  prevent  the  "carriage  of 
freights  from  being  continuous  from  the  place  of  shipment 
to  the  place  of  destination."  But  whether  the  law  did  or  did 
not  require  this,  the  connecting  railroads  would  usually 
find  it  to  their  advantage  to  facilitate  through  traffic  as 
much  as  possible. 

The  other  kind  of  cooperation  is  that  among  competing 
roads.  Formerly,  the  laws  of  the  States  and  the  Federal 
Government  endeavored  to  prevent  all  unity  of  action 
among  competing  carriers.  The  laws  against  pooling  and 
against  associated  action  in  the  making  and  maintenance  of 
rates  and  fares  were  stringent,  and  the  courts  always  held 
that  pooling  and  associated  rate  making,  whether  prohibited 


MONOPOLY  AND  COMPETITION  327 

by  statute  or  not,  were  illegal  at  common  law  because  tbey 
are  "in  restraint  of  trade."  The  theory  underlying  the 
Federal  railroad  legislation  of  1920  is  that  railroad  com- 
panies should  be  permitted  to  cooperate  in  establishing 
rates  and  fares,  though  all  such  cooperative  action  must 
be  under  the  close  supervision  of  the  Interstate  Commerce 
Commission. 

It  is  obvious  that  the  chief  purpose  of  the  railroad 
companies  in  associating  is  to  agree  upon  the  rates  they 
will  charge  and  to  stop  bidding  against  each  other  to  secure 
traffic;  in  other  words,  the  object  of  cooperation  is  to  stop 
competition,  if  possible,  and  if  that  is  impossible,  to  re- 
strain competition ;  and,  as  a  matter  of  fact,  cooperation 
does  enable  the  railroads  in  a  large  measure,  and  con- 
solidation enables  them  to  a  greater  degree,  to  remove  the 
incentive  of  the  managers  of  the  different  lines  serving  the 
same  termini  or  common  territory  or  rival  regions  of 
production  to  cut  rates  to  secure  business.  To  what  extent 
do  rates  and  fares  remain  subject  to  competitive  forces? 
To  what  extent  do  railroad  charges  become  monopolistic? 

Competition  among  railroads  is  carried  on  to  secure 
an  increased  traffic.  Most  kinds  of  traffic  can  be  attracted 
in  either  one  of  two  ways :  by  a  reduction  in  charges  or 
by  an  improvement  in  the  service  rendered.  Theoretic- 
ally, these  two  kinds  of  competition  are  the  same;  for  in 
each  case  the  carrier  gives  more  for  what  he  gets  and 
the  purchaser  of  the  service  receives  more  for  what  he 
pays ;  but  in  practice  these  two  ways  of  competing  operate 
differently.  Experience  has  shown  that  agreements  as  to 
charges  and  as  to  divisions  of  traffic  or  earnings  have  not 
kept  railroad  managers  from  seeking  to  attract  business 
by  improvements  in  service.  In  the  days  when  pooling 
was  general,  the  traffic  allotments  were  usually  made  annu- 
ally, and  each  company  which  was  a  member  to  the  agree- 
ment sought  by  improving  the  service  offered  to  increase 


328  RAILROAD  TRANSPORTATION 

its  business,  and  thus  to  be  able  to  establish  a  claim  to  a 
larger  share  of  the  pooled  business.  But  quite  independent 
of  pooling  arrangements,  every  railroad  management  has 
a  powerful  incentive  to  increase  the  traffic  of  its  road  or 
system  of  lines,  because  the  railroad  business  is  one  in 
which  the  profits  increase  more  than  proportionately  to  the 
enlargement  of  the  traffic.  It  is  a  business  of  rapidly  "in- 
creasing returns,"  and  agreements  as  to  rates  do  not  stop 
the  operation  of  that  law,  nor  indeed  can  it  be  done  by  the 
consolidation  of  competing  roads. 

The  interrailway  competition  that  attracts  most  atten- 
tion is  that  which  occurs  in  places  served  by  two  or  more 
roads.  Some  cities  or  junctions  are  called  competitive 
points.  In  them  the  several  carriers  may  bid  more  or  less 
keenly  for  the  same  traffic.  In  fact,  however,  the  great 
majority  of  cities  and  localities  are  served  by  only  one  rail- 
road, and  if  competition  were  limited  to  junction  points  it 
would  have  comparatively  limited  scope.  Rate  and  pool- 
ing agreements  have  dealt  mainly  with  the  traffic  of  "com- 
petitive points,"  and  consequently  have  not  directly  con- 
cerned the  business  of  the  great  majority  of  places,  nor 
have  the  agreements  ever  covered  more  than  a  minor  share 
of  the  total  traffic  of  the  railroad  companies  making  them.  If 
the  competitive  forces  affecting  railway  charges  were  only 
those  operating  at  junction  points,  the  greater  portion  of 
the  railway  business  would  be  non-competitive.  The  rivalry 
of  railways  at  competitive  points  has  been  only  one  of  the 
safeguards  of  the  public  against  high  charges. 

A  more  far-reaching  influence  on  rates  is  exerted  by 
what  is  termed  "the  competition  of  markets,"  by  which 
is  meant  the  competition  in  the  same  markets  of  producers 
in  different  sections  of  the  country  and  different  parts  of 
the  world.  Since  the  costs  of  transportation  have  been 
so  reduced  by  the  railroad  and  the  steamship  that  practically 
every  producer  has  the  world   for  his  market,  the  com- 


MONOPOLY  AND  COMPETITION  329 

modities  of  many  sections  compete  in  the  same  centers  of 
distribution.  Every  railroad  is  a  joint  producer  with  the 
farmers,  the  manufacturers,  the  miners,  and  the  lumbermen 
of  the  section  served  by  the  railroad,  the  carrier  having  a 
common  interest  with  the  man  who  grows  or  makes  com- 
modities in  getting  those  commodities  into  the  world's 
markets,  and  at  a  cost  that  will  permit  the  articles  to  be 
sold  in  large  quantities. 

The  "competition  of  the  markets"  is  not  dependent 
upon  the  relations  of  the  railroads  to  each  other.  Whether 
the  carriers  act  singly  or  in  association  or  are  consolidated 
into  territorial  groups,  each  group  having  a  single  manage- 
ment, the  struggle  for  the  market  goes  on.  The  rivalry  is 
international  as  well  as  interregional  within  a  single  country ; 
it  is  the  struggle  which  causes  and  accompanies  the  terri- 
torial division  of  production. 

The  instances  of  industrial  competition  are  so  numerous 
and  well  known  that  only  a  few  need  be  mentioned.  The 
coal  from  Nova  Scotia  competes  in  New  England  with 
that  from  Pennsylvania  and  West  Virginia ;  the  bituminous 
coal  fields  west  of  the  Alleghenies  compete  with  each  other 
and  with  the  anthracite  fields  east  of  the  mountains.  Ala- 
bama iron  competes  with  that  from  Michigan  and  Penn- 
sylvania in  the  American  trade,  and  the  iron  and  steel  and 
other  manufactures  of  these  and  other  States  are  sold  the 
world  over  in  competition  with  European  products. 

A  striking  illustration  of  the  effect  of  the  competition 
of  markets  was  alluded  to  in  Chapter  XVII.  The  first  long 
railroad  trunk  lines  to  be  established  in  the  United  States 
were  those  running  east  and  west  north  of  the  Potomac 
and  Ohio  Rivers.  During  recent  years  numerous  north  and 
south  trunk  lines  have  connected  the  Gulf  with  the  central 
West,  and  now  that  great  and  developing  region  uses  both 
the  Atlantic  and  Gulf  ports  as  gateways  for  its  export  and 
import  trade.     Rates  between  the  Atlantic  seaboard  and 


330  RAILROAD  TRANSPORTATION 

the  central  West  cannot  much  exceed  those  between  the 
central  West  and  Galveston,  New  Orleans,  Mobile,  and 
other  Gulf  cities. 

For  the  trade  of  the  Southern  States  there  is  a  strong 
competition  between  the  States  of  the  upper  Mississippi 
Valley  and  those  adjacent  to  our  north  Atlantic  seaboard. 
The  manufacturers  and  others  shipping  south  from  the 
north  Atlantic  States  have  the  option  of  sending  their 
goods  by  water  or  by  rail,  and  are  thus  able  to  secure  more 
favorable  rates  from  the  railroads  than  could  otherwise 
be  obtained.  The  railways  leading  south  from  Illinois  and 
the  surrounding  States  are  obliged  to  give  their  patrons 
as  low  rates  as  the  eastern  shippers  receive,  otherwise  the 
western  producers  would  lose  their  southern  markets. 

The  industrial  competition  illustrated  in  the  preceding 
paragraphs  applies  to  some  extent  to  the  traffic  of  the 
small  local  or  "non-competitive"  points  as  well  as  to  the 
shipments  to  and  from  the  large  centers  of  production 
or  distribution.  Although  the  local  shipper  is  served  by 
only  one  carrier,  he  usually  has  some  measure  of  protec- 
tion against  high  rates.  The  carrier's  monopoly  is  not  ab- 
solute for  several  reasons.  In  the  first  place,  it  is  to  the 
interest  of  the  railroad  company  to  give  the  local  producer  a 
rate  that  will  enable  him  to  market  his  commodities  with  a 
profit  sufficient  to  cause  the  business  to  expand  and  the 
railroad's  tonnage  to  increase.  Furthermore,  the  local  rates 
are  not  permitted  by  the  Interstate  Commerce  law  and  the 
Jaws  of  several  States  to  exceed  the  through  rates  when 
the  local  and  shorter  distance  traffic  is  hauled  over  the  same 
route  and  in  the  same  direction  as  the  longer  distance 
through  business.  The  competitive  forces  which  bear  down 
charges  at  the  places  served  by  several  roads  indirectly 
affect  the  rates  at  local  points  having  only  one  carrier. 

Again,  no  railroad  can  safely  keep  its  local  rates  much 
higher  than  other  companies  charge  on   their  local  busi- 


MONOPOLY  AND  COMPETITION  331 

ness,  because  if  this  is  done  those  persons  having  industrial 
establishments  along  the  line  of  that  road  will  (if  their 
business  is  such  that  it  can  be  moved)  transfer  their  plants 
to  the  lines  of  railroad  companies  offering  more  favorable 
rates.  If  the  industry  is  one  from  which  the  invested 
capital  cannot  be  withdrawn,  it  must  remain ;  but  the  busi- 
ness will  decline  in  competition  with  the  regions  receiving 
more  favorable  rates,  and  the  railroad's  tonnage  will  fall 
off.  Every  railroad  management  is  eager  to  have  capitalists 
invest  along  its  line  of  road,  and  frequently  the  special  in- 
ducement of  a  low  local  rate  is  offered.  Other  things  being 
equal,  that  road  will  secure  the  greater  number  of  indus- 
tries and  have  the  more  rapid  development  of  local  traffic 
whose  local  rates  are  the  lowest.  Railroad  companies  are 
fully  aware  of  this  fact,  and  many  of  them  have  officials, 
usually  called  industrial  agents,  whose  business  it  is  to 
ascertain  what  new  industries  can  be  developed  along  the 
company's  lines,  and  to  find  the  men  who  are  able  and  willing 
to  devote  their  capital  and  energy  to  those  industries. 

Railroad  companies  classify  their  freight  by  putting  like 
kinds  of  commodities  into  the  same  class,  and  they  are 
forbidden  by  law  to  discriminate  unjustly  against  particular 
classes  of  freight;  they  are  likewise  forbidden  to  make 
unreasonable  discriminations  between  different  shippers  and 
between  different  localities ;  and  while  it  has  not  been  pos- 
sible for  the  law  to  prevent  all  unfair  discriminations,  it 
is  possible  that  the  ability  of  some  of  the  local  industries  to 
command  favorable  treatment  has  been  of  indirect  benefit  to 
the  other  industrial  enterprises — those  from  which  capital 
cannot  readily  be  withdrawn  and  those  whose  owners  have 
not  obtained  the  assurance  of  favorable  rates  as  a  condi- 
tion of  locating  along  the  line  of  a  particular  railroad.  In- 
dustrial competition,  through  the  influence  it  has  upon  the 
mobility  of  capital  and  upon  the  direction  taken  by  capital 
seeking  investment,  has  probably  affected  to  some  extent 


332  RAILROAD  TRANSPORTATION 

the  rates  on  nearly  all  kinds  of  local  traffic.  This  compe- 
titive or  regulating  factor  is  one  whose  operation  is  only 
partially  stopped  by  the  consolidation  of  roads  into  terri- 
torial groups.  By  combining  all  the  railroads  within  a 
large  section  of  the  country  under  one  control,  the  local 
rates  on  all  the  roads  would  probably  be  equally  favorable 
or  unfavorable;  but  still  each  road  would  have  the  same 
reasons  it  formerly  had  for  keeping  its  industries  in  a 
flourishing  condition  and  for  striving  to  secure  new  in- 
dustries. Moreover,  if  there  were  several  groups  of  roads 
the  management  of  each  group  would  take  care  to  make 
local  rates  that  would  hold  and  attract  capital. 

The  conclusion  warranted  by  the  foregoing  analysis 
of  the  influences  affecting  railway  charges  is  that  the 
railroad  company  possesses  only  a  partial  monopoly.  If 
the  railroad  company  were  able  to  compel  its  patrons  to 
pay  all  they  would  pay  rather  than  forego  receiving  the 
transportation  services  desired,  the  company  would  possess 
a  complete  monopoly.  On  the  other  hand,  if  the  railroads 
were  obliged  to  accept  only  such  rates  and  fares  as  the 
shippers  and  travelers  might  choose  to  pay,  the  carriers 
would  have  no  monopoly  power  whatever.  As  a  matter  of 
fact,  neither  the  carriers  nor  their  patrons  possess  ab- 
solutely the  power  of  determining  the  charges  for  trans- 
portation. Rates  and  fares  are  neither  the  lowest  the 
railroads  will  accept  nor  the  highest  the  public  will  pay ; 
and  this  is  so  because  the  monopoly  possessed  by  the  car- 
rier is  only  a  partial  one.  Railroad  charges  are  affected 
by  numerous  competitive  forces  which  are  beyond  the  con- 
trol of  the  railway  managers,  and  which  prevent  trans- 
portation charges,  in  most  instances,  from  being  fixed  at  the 
point  of  maximum  profits.  These  competitive  forces  pre- 
vail not  only  among  carriers,  but  quite  as  much  in  the  in- 
dustrial world. 

The  effect  of  railway  consolidations  will  unquestionably 


MONOPOLY  AND  COMPETITION  333 

be  to  increase  the  power  of  those  combinations  to  restrain 
the  operation  of  the  competitive  forces  just  described.  The 
present  partial  monopoly  of  the  companies  will  become  a 
more  effective  one;  but  the  nature  of  the  competitive  forces 
is  such  that  the  railroads  cannot  secure  a  complete  mo- 
nopoly. Whether  the  monopoly  power  possessed  by  the  rail- 
road companies  at  the  present  time,  or  at  any  future  time, 
is  a  greater  one  than  is  consistent  with  the  welfare  of 
the  public,  is  a  question  for  the  public  to  decide.  The 
railroad  companies  are  engaged  in  a  service  of  a  public 
nature;  if  they  possess  great  power  in  determining  trans- 
portation charges,  it  is  the  right  and  the  duty  of  the 
government  to  limit  that  power  by  regulative  legislation.  It 
does  not  disprove  the  necessity  for  the  government  regula- 
tion of  railway  charges  to  prove  that  the  monopoly  possessed 
by  the  railroads  is  only  partial  and  not  absolute. 

The  railroad  business  is  very  frequently  spoken  of  as 
a  "natural  monopoly."  While  the  term  expresses  a  partial 
truth,  it  is  apt  to  suggest  the  idea  of  a  complete  monopoly, 
and  thus  to  convey  a  wrong  meaning.  Indeed,  those  who 
call  railroads  natural  monopolies  also  apply  the  term  to 
industrial  enterprises  whose  managers  have  the  power  to  fix 
prices  at  the  point  of  maximum  profits — that  is,  to  charge 
all  the  public  will  pay  rather  than  forego  purchasing.  It 
is  better  to  call  railroads  partial  monopolies,  and  to  apply 
the  term  complete  monopolies  to  those  businesses  in  which 
the  seller  has  the  power  of  dictating  prices  to  the  buyer. 

REFERENCES 

Hadley,  A.  T.     Railroad  Transportation,  chap,  iv   (1885). 
Report  of  Industrial  Commission,  XIX,  355-364  (1902). 
Newcomb,  H.  T.    Railway  Economics,  chaps,  viii  and  ix  (1898). 


CHAPTER  XXI 
THEORY  OF  RATES  AND  FARES 

Need  of  a  theoretical  basis  of  rates  and  fares,  334.  Meanings  of 
the  term  "cost,"  335.  The  impossibility  of  determining  exactly 
the  cost  of  a  particular  service,  336.  Cost  an  undesirable  as 
well  as  an  impracticable  basis  of  railway  charges,  337.  The 
value  of  the  service  theory  of  charges,  340.  The  value  of 
commodity  theory,  or  the  taxation  principle,  of  charges,  342. 
Charging  "what  the  traffic  will  bear,"  343.  What  constitutes 
a  theoretically  just  rate?  344.  Discriminations  may  be  just  or 
unjust,  346.  The  socialization  of  rates  and  fares,  347.  Refer- 
ences, 348. 

The  foregoing  analysis  of  interrailway  relations  and  of 
the  scope  of  competition  and  monopoly  in  the  railroad 
service  indicates  the  conditions  under  which  carriers  work 
in  fixing  rates  and  fares.  It  is  the  purpose  of  this  chapter 
to  discuss  the  theoretical  basis  of  rates  and  fares,  that  is, 
to  consider  what  principles  are  followed  in  the  determina- 
tion of  what  constitutes  a  reasonable  and  just  amount  for  a 
shipper  or  a  traveler  to  pay  the  carrier  for  the  service 
of  transportation.  This  question  has  become  one  of  great 
importance  since  governmental  authorities  began  to  exercise 
the  right  to  fix  rates  and  fares.  Commissions  and  legisla- 
tive bodies  endowed  with  the  power  of  establishing  maxi- 
mum rates  and  courts  which  review  the  orders  of  com- 
missions or  the  acts  of  legislative  bodies  with  respect  to 
railroad  rates  are  bound  to  observe  the  general  injunction 
that  rates  must  be  reasonable  and  just.  Manifestly,  in 
order  to  do  justice  both  to  the  carriers  and  to  the  public, 
'egislative  and  judicial  bodies  must  be  guided  to  a  certain 

334 


THEORY  OF  RATES  AND  FARES  335 

extent  by  abstract  principles  of  rate  making.  Unfortunately 
there  is  no  definite  method  which  may  be  used  in  arriving 
at  a  conclusion  as  to  the  reasonableness  of  rates ;  there 
are,  however,  a  few  important  general  principles  which 
may  be  taken  into  consideration. 

The  charge  for  transportation,  or  any  other  service, 
may  in  theory  be  fixed  either  with  reference  to  the  cost 
of  the  service  to  the  agent  who  performs  the  work  or 
with  regard  to  the  value  of  the  service  to  the  recipient, 
or  the  charge  may  be  affected  by  both  the  cost  and  the 
value  of  the  service.  Abstractly  considered,  it  seems  most 
natural  to  assume  that  the  payment  for  the  service  should 
be  in  proportion  to  the  cost — that  the  carrier's  charges 
for  services  of  different  kinds  should  vary  according  to 
the  differences  in  the  costs  of  performing  the  several 
tasks.  In  reality,  however,  it  is  impossible  to  determine 
railroad  charges  strictly  according  to  the  costs  of  the 
services. 

In  discussing  the  cost  theory  of  railway  rates,  it  is  neces- 
sary to  keep  clearly  in  mind  what  is  meant  by  cost,  because 
the  word  is  used  with  several  meanings.  In  the  preceding 
paragraph  the  word  is  used  to  include  all  the  expenses 
chargeable  against  the  service — interest  on  the  capital  em- 
ployed, deterioration  of  plant,  insurance,  wages,  outlay  for 
operating  expenses,  ordinary  business  profits,  etc.  The  word 
"cost"  is,  however,  frequently  used  to  mean  only  operat- 
ing expenses,  or  the  expenses  incurred  in  using  the  plant 
to  perform  a  service.  The  railroad  is  thought  of  as  being 
in  existence  and  in  use,  and  the  costs  of  the  services  are 
considered  to  be  expenses  of  operation.  In  this  sense  the 
cost  of  each  of  the  several  services  is  its  appropriate  share 
of  the  aggregate  operating  expenses  caused  by  the  per- 
formance of  a  multitude  of  services.  The  cost  of  a  single 
service  is  such  a  part  of  the  total  operating  expenses  as  may 
be  properly  charged  against  that  service.     Again,  the  cost 


336  RAILROAD  TRANSPORTATION 

of  any  particular  service  is  often  thought  of  as  only  the 
additional  or  extra  expense  incurred  in  performing  that 
service,  that  is,  the  outlay  that  would  not  have  been  made 
had  the  freight  or  passenger  not  been  carried.  This  is 
the  sense  in  which  the  traffic  manager  is  most  apt  to  use  the 
term  when  he  is  considering  whether  he  will  accept  or 
reject  an  offer  of  freight  or  an  opportunity  to  run  an  addi- 
tional passenger  coach  or  train.  The  traffic  manager  seeks 
to  ascertain  how  much  additional  it  will  cost  to  do  this 
service,  and  if  the  increase  in  expenses  is  appreciably  less 
than  the  additional  receipts  to  be  secured,  he  will  perform 
the  service  rather  than  let  it  be  done  by  a  rival  carrier. 

In  whichever  sense  the  term  "cost"  is  used,  it  is  impos- 
sible for  the  railroad  official  to  ascertain  precisely  what 
are  the  costs  of  a  particular  transportation  service.  Every 
railroad  engaged  in  transporting  general  traffic  carries  thou- 
sands of  different. commodities;  the  cargo  of  a  freight  train 
is  usually  made  up  of  a  large  variety  of  articles,  and  fre- 
quently several  kinds  of  goods  are  sent  in  the  same  car.  To 
enable  the  company  to  run  a  train  or  haul  a  car,  the  road- 
way, depots,  yards,  and  all  the  different  parts  of  the  serv- 
ice have  to  be  provided.  Out  of  the  gross  receipts  obtained 
from  the  shippers  and  passengers,  the  various  expenses 
of  the  company  are  met ;  but  no  company  is  able  to  determine 
just  what  part  of  the  expense  incurred  by  the  several 
branches  of  the  service  should  be  charged  against  the  man 
who  has  sent  a  ton  or  a  carload  of  goods  a  certain  dis- 
tance over  the  company's  road,  or  against  the  man  who 
has  traveled  a  given  number  of  miles  on  the  line.  Most  of 
the  expenditures  of  a  railroad  company  are  "joint  costs," 
that  is,  they  are  paid  out  for  the  maintenance  of  the  serv- 
ice as  a  whole,  and  have  little  direct  connection  with  any 
particular  act  of  transportation.  About  three-tenths  of  the 
railroad  company's  total  costs  are  capital  costs,  taxes,  and 
other  fixed   charges,   and   seven-tenths   are  operating  and 


RAILROAD  TRANSPORTATION  337 

maintenance  expenses.  Obviously  the  volume  of  traffic  can- 
not appreciably  lessen  or  increase  fixed  charges.  Operating 
expenses  alone  will  vary  greatly  with  the  tonnage  handled 
and  the  number  of  services  performed,  but,  even  in  the 
case  of  outlay  for  operation,  only  a  part  of  the  expenses 
is  affected  by  the  increase  or  decrease  of  traffic.  A  decline 
or  a  gain  of  10  or  20  per  cent  in  volume  of  business  will 
have  but  comparatively  little  effect  upon  the  outlay  for 
track,  structures,  terminals,  and  even  for  cars  and  locomo- 
tives. The  revenue  obtained  from  each  freight  and  pas- 
senger service  performed  should,  if  possible,  be  made  to 
contribute  something,  but  no  one  can  say  just  how  much, 
toward  the  joint  or  aggregate  costs  of  maintaining  and  op- 
erating the  transportation  organization. 

About  as  far  as  the  traffic  official  can  go  in  measur- 
ing cost  is  to  calculate  the  expenses  of  running  a  train 
The  outlay  for  wages  of  train  crew,  for  fuel,  oil,  repairs^ 
and  maintenance  of  cars  and  locomotives,  can  be  calcu- 
lated rather  closely,  and  thus  the  expense  of  moving  a 
particular  train  a  mile — the  "train-mile  costs" — can  be  got  at 
with  some  degree  of  certainty;  but  unless  the  train  is  loaded 
with  only  one  commodity  this  does  not  enable  the  statistician 
to  calculate  what  movement  expenses  are  incurred  in  connec- 
tion with  each  or  any  of  the  articles  of  freight  of  which 
the  train's  cargo  is  composed.  Besides  meeting  the  ex- 
penses due  to  moving  the  train,  the  receipts  from  the  traffic 
carried  by  the  train  should  contribute  a  greater  or  less 
amount  toward  defraying  the  company's  "joint  costs,"  but 
how  much  of  the  joint  expenses  to  charge  against  any 
particular  train  cannot  be  closely  determined,  much  less 
can  one  decide  precisely  how  much  of  the  "joint  costs"  are 
incurred  in  transporting  each  commodity  in  the  cargo. 

Even  if  it  were  possible  to  ascertain  the  cost  of  per- 
forming a  particular  service,  and  thus  to  base  rates  and 
fares  upon  the  cost,  it  would  be  to  the  advantage  neither 


338  RAILROAD  TRANSPORTATION 

of  the  public  nor  of  the  carrier  to  adopt  a  strictly  cost 
basis  of  charges.  If  charges  were  apportioned  among  com- 
modities according  to  the  cost  of  transportation,  the  revenues 
derived  from  articles  of  small  bulk  but  of  high  value — such 
as  laces,  silks,  shoes,  etc. — would  be  much  less  than  present 
receipts,  and  such  commodities  as  coal,  iron  ore,  lumber, 
grain,  salt,  and  fertilizers  would  have  to  pay  higher  rates 
than  they  are  now  charged.  To  raise  the  rates  largely  on 
the  bulky  materials  of  industry  would  so  restrict  the 
amounts  transported  as  greatly  to  limit  industry,  to  reduce 
the  volume  of  manufactures  to  be  carried  by  the  railroads, 
and  to  impose  serious  restraints  upon  social  progress.  The 
phenomenal  industrial  advance  of  the  United  States  since 
1890  has  been  made  possible  by  the  low  transportation 
rates  on  food  products  and  the  materials  of  industry ;  and 
these  low  charges  would  not  have  been  possible  had  not 
the  less  bulky  articles  of  higher  value  paid  more  than  their 
proportionate  share  of  the  total  expenses  of  railroad  trans- 
portation. 

But  while  it  is  neither  possible  nor  desirable  to  fix  rail- 
way charges  solely  with  reference  to  cost  of  service,  this 
principle  must  nevertheless  receive  full  consideration  in  the 
determination  of  reasonable  rates.  The  charge  for  trans- 
porting any  commodity  or  class  of  freight  should  vary 
with  the  weight  of  the  consignment  and  the  distance  it 
is  shipped,  for  the  reason  that  both  weight  and  distance  are 
factors  affecting  the  cost  of  service.  Expenses,  however,  do 
not  rise  proportionately  with  the  increase  of  either  factor. 
It  costs  less  per  ton  or  per  hundredweight  to  transport 
goods  in  train  loads  than  in  single  carload  quantities,  and 
less  in  carloads  than  in  smaller  amounts ;  likewise  the  move- 
ment expenses  per  ton  per  mile  grow  less  with  every  in- 
crease in  the  length  of  the  haul,  and  the  terminal  ex- 
penses, which  also  must  be  covered  by  the  rate  charged, 
are  less  per  ton  per  mile  when   distributed  over  a  long 


THEORY  OF  RATES  AND  FARES  339 

haul.  Low  rates  given  to  carload  shipments  and  especially 
low  rates  on  coal,  iron  ore,  and  other  commodities  when 
hauled  in  full  train  loads,  are  justified  by  differences  in  the 
cost  of  service,  and  charges  for  long  hauls  are  likewise 
properly  less  per  ton  per  mile  than  are  the  rates  for  short 
distances.  / 

The  importance  that  should  be  attached  to  distance  in 
making  rates  is  a  much  debated  question.  While  no  one 
advocates  charging  a  flat  rate  per  ton  per  mile  regardless 
of  distance,  there  are  wide  differences  of  opinion  as  to  the 
extent  to  which  it  is  proper  to  deviate  from  that  rule.  In 
the  days  of  unregulated  competition  the  struggle  of  railways 
for  traffic  to  and  from  large  industrial  or  trade  centers 
caused  lower  absolute  rates  to  be  given  for  long-distance 
hauls  between  competitive  points  than  were  accorded  for 
the  shorter  hauls  to  and  from  intermediate  points  where 
rivalry  for  traffic  was  less  intense  or  was  non-existent. 
The  Act  to  Regulate  Commerce  of  1887  contained  a  clause 
designed  to  curb  this  practice,  but  its  wording  robbed  it  of 
effectiveness.  The  Railway  Rate  Act  of  1910  definitely 
prohibited  a  greater  charge  for  the  shorter  intermediate 
haul,  unless  permission  to  make  such  a  discrimination 
should  be  given  the  carrier  by  the  Interstate  Commerce 
Commission.  This  law  was  manifestly  a  recognition  of 
the  importance  of  cost  of  service  in  rate  making. 

The  Interstate  Commerce  Act,  as  amended  in  1920,  now 
contains  a  specific  rule  for  the  guidance  of  the  Interstate 
Commerce  Commission  in  establishing  the  general  level  of 
rates.  This  rule,  which  requires  that  the  level  of  rates  be 
such  as  to  provide  a  revenue  which  will  enable  the  car- 
riers, under  efficient  and  economical  management,  to  earn 
a  definite  rate  of  return  on  their  property,  is  a  recognition 
of  the  cost  element  in  rate  making.  The  impossibility  of 
ascertaining  the  cost  of  hauling  single  shipments  will  con- 
tinue to  prevent  an  exact  application  of  the  cost  theory  to 


340  RAILROAD  TRANSPORTATION 

t 

individual  rates,  but  under  normal  conditions  it  should  be 
possible  to  determine  whether  railroad  charges  as  a  whole 
are  at  a  "reasonable"  level,  t 

If  the  value  of  the  service  received  by  the  shipper  or 
traveler  were  made  the  basis  of  railway  charges,/  rates 
would  be  fixed  with  reference  to  the  value  added  to  an 
article  by  being  transported  from  one  place  to  another, 
and  fares  would  depend  on  the  values  which  passengers 
placed  upon  being  carried  certain  distances  by  rail.  If 
a  bushel  of  wheat  is  worth  60  cents  in  Minnesota  and  80 
cents  in  New  York,  the  railroad  can  add  20  cents  to  the 
value  of  the  wheat  by  carrying  it  from  Minnesota  to 
New  York;  and  if  the  transportation  charge  were  made 
equal  to  the  entire  value  of  the  service  of  carriage  the 
rate  could  be  made  nearly  20  cents  a  bushel.  Likewise, 
if  the  people  desiring  to  travel  between  Philadelphia  and 
New  York  place  an  average  estimate  of  $2.50  on  the 
value  of  riding  by  rail  between  the  two  cities,  the  fare  can 
be  made  $2.50.  It  is  evident,  however,  that  the  value  of 
the  service  in  the  passenger  business  is  not  easy  to  ascer- 
tain. One  man  may  prefer  to  pay  several  hundred  dollars 
rather  than  forego  a  quick  trip  by  rail  from  New  York 
to  Philadelphia,  while  another  person  desirous  of  making  the 
trip  may  not  consider  the  service  worth  as  much  as  $2.50. 
Commodities  have  market  values  in  all  places  where  they  are 
bought  and  sold,  and  the  excess  in  the  price  of  an  article 
in  one  market  over  the  price  in  another  place  indicates 
how  much  value  transportation  can  add  to  the  article,  but 
there  is  no  general  measure  of  the  values  that  can  be  created 
by  transporting  persons.  All  the  railroad  company  can  do 
to  ascertain  the  value  of  its  passenger  services  is  to  watch 
the  effects  of  fares  on  the  volume  of  travel.  If  an  increase 
in  fares  considerably  reduces  the  number  of  journeys  taken, 
the  fares  are  presumably  above  the  average  value  of  the 
service.      Likewise,    if    a    large    increase    in    travel    results 


THEORY  OF  RATES  AND  FARES  341 

from  a  reduction  of  charges,  the  inference  would  be  that 
fares  had  been  in  excess  of  the  average  of  the  value  of  the 
service. 

The  value  of  the  service  is,  unquestionably,  the  chief 
basis  of  railway  charges  as  fixed  by  railway  officials,  and 
moreover  its  validity  as  a  basis  of  rates  has  at  various 
times  been  sanctioned  by  the  Interstate  Commerce  Commis- 
sion. Charging  v/hat  the  traffic  will  bear  has  been  the 
"great  dynamic  force"  in  the  rate-making  policy  of  Ameri- 
can railway  managers.  The  railroads  in  the  United  States 
have  shared  with  farmers,  miners,  lumbermen,  manufac- 
turers and  other  producers  in  the  great  work  of  developing 
the  material  resources  of  the  United  States,  and  have 
sought  to  adapt  transportation  rates  to  the  requirements  of 
production  and  to  trade  conditions  prevailing  in  a  country 
where  raw  materials  are  remote  from  mills  and  where 
markets  are  far  from  farm  and  factory.  On  the  whole  it 
has  been  fortunate  that  the  railroads  have  followed  a 
policy  calculated  to  bring  about  the  widest  development 
of  markets  and  the  greatest  possible  range  of  trade. 

There  are,  however,  certain  consequences  resulting  from 
charging  what  the  traffic  will  bear,  that  are  not  to  the  gen- 
eral advantage  of  the  public,  and  which  need  to  be  kept 
clearly  in  mind  both  by  rate  makers  and  by  rate  regulators. 
One  of  the  chief  objections  to  charging  what  the  traffic 
will  bear  is  that  the  adoption  of  such  a  principle  does  not 
insure  that  resulting  rates  shall  in  themselves  be  reason- 
able. There  is  no  good  reason  why  railroads  should  be  per- 
mitted to  absorb  all  the  values  created  by  the  transfer  of 
commodities  from  place  to  place.  Notwithstanding  the 
fact  that  competitive  forces  go  far  to  prevent  railway 
charges  from  being  high,  and  actually  do  keep  most  rates 
within  the  limits  of  reasonableness,  it  is  still  true  that  com- 
petition is  not  so  universal  and  so  unrestricted  throughout 
industry  and  transportation  as  to  orotect  shippers  and  con- 


342  RAILROAD  TRANSPORTATION 

sumers  against  the  danger  of  unjustly  high  freight  rates. 
The  fact  that  the  transportation  charges  on  many  commodi- 
ties, even  when  rates  are  unduly  high,  constitute  only  a 
small  part  of  the  total  price  of  the  goods,  only  serves  to  make 
clear  that  the  railroads  may  exact  greater  sums  than  they  are 
entitled  to  receive  and  that  they  may  impose  a  tax  on 
production  or  consumption  which  somebody  is  compelled 
to  pay. 

Another  basis  for  freight  transportation  charges  may 
be  found  in  the  value  of  the  commodities  to  the  shipper. 
It  would  be  theoretically  possible  to  construct  a  schedule 
of  rates  by  fixing  the  charges  with  only  incidental  reference 
either  to  the  cost  or  to  the  value  of  service,  but  with 
regard  primarily  to  the  absolute  and  relative  values  of 
the  articles  carried,  and  there  are  some  reasons  why  this 
would  be  desirable.  The  absolute  increase  in  the  value 
which  cheap  and  bulky  goods,  like  coal,  lumber,  iron,  grain, 
etc.,  obtain  by  transportation  is  small  per  ton  of  weight, 
as  compared  with  the  addition  to  the  value  gained  by  a 
like  quantity  of  high-priced  commodities,  such  as  shoes  and 
dry  goods.  A  ton  of  coal  worth  $2  on  the  car  at  the  mine 
may  sell  for  $3  at  the  ocean  pier,  transportation  having 
added  50  per  cent  to  its  value ;  whereas,  a  ton  of  silk  goods 
may  be  worth  only  1  or  2  per  cent  more  in  Chicago  than  in 
Paterson,  N.  J.  If  the  freight  rates  are  based  on  the  value 
created  by  the  transportation,  the  shipper  of  coal  will  prob- 
ably pay  30  or  40  per  cent  of  the  value  of  the  coal  for  getting 
it  carried  to  market,  while  the  shipper  of  silks  and  other 
costly  articles  will  possibly  pay  the  carrier  1  or  2  per  cent 
of  their  value.  Measured  in  percentages  of  the  values  of 
the  commodities,  the  value  of  the  service  is  low  for  costly 
articles,  and  high  for  cheap  and  bulky  commodities. 

The  policy  of  charging  higher  rates  upon  valuable  com- 
modities than  upon  those  of  less  worth  is  not  to  be  con- 
demned, but  rather  to  be  commended.     Indeed,  American 


THEORY  OF  RATES  AND  FARES  343 

railways  might  go  farther  than  they  now  do  in  making 
the  value  of  the  commodity  a  basis  of  charge ;  and  might, 
without  appreciable  injury  to  trade,  considerably  increase 
rates  on  high-priced  goods.  There  could  be  no  valid  ob- 
jection to  such  a  policy  from  the  standpoint  of  the  public 
welfare.  The  carrier  would  secure  his  gross  receipts,  ac- 
cording to  this  principle,  by  taxing  the  producers  of  grain 
a  certain  per  cent  of  its  value,  and  the  various  manufac- 
turers and  other  shippers  certain  percentages  of  the  values 
of  their  goods.  The  rate  of  assessment  on  the  producers  of 
bulky  articles  would  necessarily  be  higher  than  the  rates 
imposed  on  shippers  of  costly  goods,  but  the  effect  of  the 
application  of  this  principle  would  be  to  make  the  freight 
charge  on  high-priced  goods  more  than  they  would  be  if 
made  according  to  the  cost  or  value  of  the  service,  and 
to  make  rates  on  bulky  commodities  lower.  Whether  the 
rates  of  assessment  imposed  upon  different  classes  of  com- 
modities were  relatively  just  would  be  a  question  to  be  de- 
termined in  the  first  instance  by  the  carriers  and  shippers, 
but  would  also  be  a  question  upon  which  the  state  would 
have  the  last  word,  because  the  state  is  the  final  judge  of  the 
reasonableness  of  all  transportation  charges. 

The  railway  officials  who  make  the  rates  and  fares  do 
not  consciously  endeavor  to  follow  any  of  these  abstract 
theories  of  railroad  charges;  they  study  the  traffic  and  the 
conditions  of  competition  under  which  it  must  be  carried 
and  seek  to  "charge  what  the  traffic  will  bear."  They 
could  not  make  the  cost  of  service  their  sole  guiding  prin- 
ciple if  they  wished ;  and,  indeed,  they  have  no  desire  to  do 
so.  They  are  in  reality  concerned  with  two  things :  what 
the  one  who  receives  the  service  can  pay,  and  what  rate  the 
rival  carrier,  if  there  is  or  may  be  a  competitor,  is  giving 
or  is  likely  to  give.  In  determining  what  the  buyer  of  trans- 
portation can  pay,  the  chief  consideration  is  the  value  of 
the  service  to  the  shipper  or  passenger,  and  the  intelligent 


:]U  RAILROAD  TRANSPORTATION 

determination  of  that  question  requires  the  exercise  of 
sound  judgment.  Charging  ''what  the  traffic  will  bear"  sel- 
dom justifies  the  carrier  in  exacting  all  the  traffic  will  bear 
at  the  time  the  charges  are  made,  because  such  rates  and 
fares  would  prevent  the  traffic  from  growing  in  volume 
C'.nd  variety,  and  would  thus  interfere  with  the  future  pros- 
perity of  the  railroad.  How  traffic  managers  actually  make 
rates  and  fares  in  seeking  to  charge  what  the  traffic  will 
bear  is  considered  in  the  next  chapter. 

The  chief  aims  of  the  traffic  official  in  fixing  rates  and 
fares  are  to  obtain  a  profitable  revenue  and  to  secure  an 
increasing  volume  of  business.  What  he  seeks  most  of  all 
to  avoid  is  a  charge  that  will  interfere  with  the  growth  of 
traffic.  He  realizes  that  railroad  transportation  is  for  most 
lines  a  business  of  increasing  returns,  and  he  wants  more 
business,  because  that  means  more  profits.  The  traffic  offi- 
cials are  not  especially  concerned  with  the  absolute  or  relative 
"reasonableness  or  justice"  of  the  charges  paid  by  different 
persons  or  levied  upon  different  classes  of  goods,  except 
in  so  far  as  an  unjust  or  unreasonable  charge  may  inter- 
fere with  the  profits  or  the  growth  of  traffic.  With  the 
state,  however,  the  primary  consideration  is  the  absolute 
and  relative  justness  or  reasonableness  of  rates  and  fares. 
It  is  the  duty  of  the  state  to  secure  to  each  person  just  treat- 
ment by  public  carriers.  Moreover,  this  duty  must  be  per- 
formed in  such  a  way  as  to  do  justice  to  the  carriers  and  to 
further  the  progress  of  society.  The  state  is,  therefore, 
compelled  to  seek  an  answer  to  the  question,  What  is  a  just 
and  reasonable  rate?  Unfortunately,  the  question  cannot 
be  answered  with  mathematical  precision.  There  is  no  gen- 
eral formula  or  rule  by  which  the  justice  of  a  rate  or  fare 
can  be  determined ;  the  state  officials  must  content  them- 
selves with  analyzing  and  giving  due  influence  to  the  con- 
siderations that  should  have  weight  in  rate  making.  If 
the  railroads  were  owned  and  operated  by  the  Government, 


THEORY  OF  HATES  AND  FARES  345 

the  state's  duty  of  insuring  to  its  citizens  justice  in  trans- 
portation charges  would  be  a  somewhat  less  difficult  one, 
but  even  then  it  would  not  be  an  easy  matter  to  find  and 
follow  the  sure  path  of  justice. 

As  long  as  the  railways  are  owned  by  private  corpora- 
tions, a  rate  for  any  particular  service  can  hardly  be  just 
to  the  carrier  unless  it  equals  or  somewhat  exceeds  the  ad- 
ditional costs  incurred  in  performing  that  service — the  ex- 
penses that  would  have  been  avoided  had  that  service  not 
been  rendered.  While  it  is  neither  possible  nor  desirable 
to  adjust  rates  and  fares  proportionately  to  costs  of  serv- 
ice, the  demands  of  justice  seem  clearly  to  require  that  total 
costs,  including  a  fair  profit  on  invested  capital,  shall  be 
covered  by  total  receipts,  and  that  the  minimum  rate  or  fare 
shall  cover  the  additional  operating  expenses  incurred  by 
the  carrier  in  performing  the  particular  service  for  which 
the  charge  is  made.  There  would  be  no  theoretical  objec- 
tion, from  the  standpoint  of  justice,  to  an  adjustment  of 
charges  by  which  certain  kinds  of  commodities  or  certain 
classes  of  travel  should  be  required  to  contribute  little  or 
nothing  toward  the  joint  costs  or  fixed  charges,  provided 
the  articles  of  high  value  and  the  persons  who  travel  lux- 
uriously can  be  and  are  assessed  rates  and  fares  that  will 
yield  enough  to  pay  the  fixed  charges  and  joint  costs ;  but 
charges  that  did  not  cover  the  "additional"  costs  of  opera- 
tion would  be  unjust  to  the  railroads  and  would  work  a 
detriment  to  the  public  by  checking  the  growth  of  the  rail- 
way mileage  and  the  development  of  traffic. 

Xo  railway  charge  can  be  greater  than  the  value  the  ship- 
per or  traveler  can  gain  by  securing  the  transportation  serv- 
ice desired.  A  charge  greater  than  the  value  of  the  service 
would  be  objectionable  both  because  of  its  injustice  and 
because  it  would  prevent  the  performance  of  the  service. 
Xo  one  desiring  a  service  will  pay  more  than  the  service 
is  worth  to  him,  and  traffic  managers  are,  of  course,  careful 


V 


346  RAILROAD  TRANSPORTATION 

to  keep  the  charges  below  this  maximum  point ;  but  between 
this  upper  limit,  set  by  the  value  of  the  service,  and  the 
minimum  charges,  fixed  by  the  extra  costs  incurred  by  per- 
forming a  particular  service,  there  is  a  wide  range  through 
which  rates  and  fares  can  and  do  vary.  Where  within  this 
range  the  line  of  justice  is  to  be  drawn,  where  charges  shall 
be  fixed  so  as  to  prevent  or  minimize  unjust  discrimina- 
tions, constitutes  the  difficult  problem  of  government  regu- 
lation. Experience  has  shown  that  discriminations  of  a 
most  detrimental  character  will  be  made  unless  prevented 
by  government  authority. 

Not  every  discrimination  is  unjust.  If  such  were  the 
case,  justice  among  shippers  would  consist  in  charging  every 
person  a  like  sum  for  the  same  or  essentially  similar  serv- 
ices. No  two  carriers  perform  their  services  under  iden- 
tical circumstances.  One  railroad  may  have  easy  grades, 
few  curves,  a  traffic  of  about  equal  volume  in  each  direc- 
tion, and  may  be  free  from  competition  with  a  water-route. 
Another  company's  road  may  have  steep  grades  and  sharp 
curves,  and  its  traffic  may  be  carried  mainly  in  one  direc- 
tion and  in  competition  with  a  line  of  vessels.  It  is  rea- 
sonable that  the  charges  over  the  second  of  these  roads 
should  be  higher  than  over  the  first.  Indeed,  so  various  are 
the  factors  affecting  the  reasonableness  of  railroad  charges 
that  the  state  can  formulate  no  general  rule  by  which  to 
test  the  reasonableness  of  all  rates  and  fares.  In  deciding 
upon  the  justice  of  charges,  each  company  and  each  class 
of  traffic  must  be  considered  with  reference  to  the  conditions 
peculiar  to  the  company  and  to  the  class  of  traffic  in  ques- 
tion. In  legislation,  to  secure  relative  justice  among  those 
served  by  the  railroads,  the  state  can  prohibit  only  what  is 
embodied  in  the  third  section  of  the  Interstate  Commerce 
Act  and  make  it  unlawful  for  a  carrier  to  give  "any  undue 
or  unreasonable  preference  or  advantage  to  any  particular 
person,    company,    firm,    corporation,    or   locality,    or   any 


THEORY  OF  RATES  AND  FARES  347 

particular  description  of  traffic."  The  determination  of  what 
constitutes  an  undue  or  unreasonable  preference  must  be 
left  to  the  judgment  of  the  courts  and  expert  officials  of  the 
government. 

In  reaching  a  decision  as  to  the  reasonableness  of  railway 
charges,  the  officers  of  the  state  are  in  duty  bound  to  con- 
sider the  interests  of  the  carrier,  the  individual  shipper,  and 
the  general  public.  The  carrier's  minimum  charge  is  fixed 
by  the  "extra"  cost  due  to  performing  the  service  in  ques- 
tion; the  shipper's  maximum  payment  is  the  value  of  the 
service;  to  locate  the  just  charge  lying  intermediate  between 
these  two  extremes,  consideration  must  be  given  to  the  cost 
of  the  service  to  the  carrier  and  the  conditions  of  compe- 
tition under  which  the  service  is  performed,  the  value  of 
the  service  to  the  one  who  receives  it,  the  value  of  the  arti- 
cle, and  its  importance  to  the  industrial  progress  of  society. 

As  the  state  endeavors  more  consciously  and  intelligently 
to  realize  justice  in  transportation  charges,  greater  attention 
will  be  given  to  the  relation  of  rates  and  fares  to  the  inter- 
ests of  society.  The  carrier  is  entitled  to  adequate  remuner- 
ation for  his  labor,  his  capital,  and  his  risks ;  the  shipper 
and  passenger  are  entitled  to  charges  that  are  absolutely  and 
relatively  reasonable ;  the  public  as  a  whole  may  justly  insist 
on  such  a  distribution  of  those  charges  among  different 
kinds  of  commodities  and  classes  of  passengers  as  will  be 
most  advantageous  to  society.  One  way,  and  probably  the 
best  way,  to  accomplish  this  "socialization"  of  rates  and 
fares,  is  to  extend  the  taxation  principle  of  railway  charges 
— to  fix  rates  more  largely  with  reference  to  the  value  of 
the  commodities,  and  to  fix  fares  so  that  they  will  more 
nearly  correspond  with  the  abilities  of  different  classes  of 
travelers. 

The  socialization  of  rates  and  fares — the  collection  of  the 
total  revenue  to  which  the  carriers  are  entitled  by  fixing 
charges  primarily  with  reference  to  the  needs  of  society,  and 


.348  RAILROAD  TRANSPORTATION 

only  secondarily  with  regard  to  the  cost  or  value  of  each 
particular  service — is  the  goal  toward  which  the  public  will 
be  led  in  its  efforts  to  secure  and  enforce  justice  in  trans- 
portation charges.  However,  justice  is  not  to  be  had  by  dis- 
covering and  applying  any  infallible  rule  or  theory.  Justice 
is  a  question  of  judgment,  and  the  factors  affecting  judg- 
ment must  be  different  for  each  case  decided,  and  must 
change  from  time  to  time  as  society  alters  its  ethical  stand- 
ards. The  purpose  of  this  chapter  has  been  to  analyze 
briefly  the  factors  which  do  and  properly  may  influence 
the  judgments  of  the  carrier,  the  shipper  and  passenger, 
and  the  general  public  as  regards  railway  charges. 

REFERENCES 

Weyl,  W.  E.  "The  Passenger  Traffic  of  Railways,"  chap,  v, 
in  Publications  of  the  University  of  Pennsylvania,  1901. 

Hadley,  A.  T.     Railroad  Transportation,  chap,  vi   (1885). 

Seligman,  E.  R.  A.  "Railway  Tariffs  and  the  Interstate  Com- 
merce Law,"  in  Political  Science  Quarterly,  II,  No.  2, 
1887. 

Newcomb,  H.  T.    Railway  Economics,  chaps,  x-xvi  (1898). 

Taussig,  F.  W.  "A  Contribution  to  the  Theory  of  Railway 
Rates,"  in  Quarterly  Journal  of  Economics,  July  1891. 

Acworth,  W.  M.  The  Railways  and  the  Traders  (London, 
1891). 

Noyes,  W.  C.    American  Railroad  Rates,  chaps,  i  and  ii  (1905). 

Johnson  and  Huebner.  Railroad  Traffic  and  Rates,  I.  chap. 
xx ;  II,  chap,  xxxv  (191 1). 

Ripley,  W.  Z.  Railroads:  Rates  and  Regulation,  chaps  ii  and 
iii  (1912). 

Sharfman,  I.  L.    Railway  Regulation,  chap,  v  (1915). 

McFall,  Robert  James.  "Railway  Monopoly  and  Rate  Regu- 
lation," in  Columbia  University  Studies  in  Political  Science, 
LXIX,  No.  1,  1916. 

Brown,  H.  G.  Transportation  Rates  and  Their  Regulation 
(1916). 


CHAPTER   XXII 

RATE  MAKING  IN   PRACTICE 

The  problem  of  rate  making  different  for  private  and  state  rail- 
roads, 349.  Classification  the  first  step  in  making  freight  rates, 
350.  The  machinery  for  making  freight  rates,  352.  Considera- 
tions which  influence  the  decisions  of  traffic  officials,  354.  Rail- 
road cooperation  in  rate  making,  355.  Rate  systems  in  the 
United  States,  356.  The  trunk  line  rate  system,  356.  The 
southern  rate  system,  357.  The  western  rate  system,  358. 
Transcontinental  rates,  359.  Import  and  export  rates,  360.  The 
machinery  for  making  passenger  fares,  360.  The  problem  of 
fixing  passenger  fares  as  compared  with  the  freight  rate  prob- 
lem, 361.  The  general  tariff  policy  of  American  and  foreign 
railroads,  363.     References,  364. 

The  problem  of  making  rates  and  fares  for  the  railroads 
in  the  United  States  and  other  countries  where  the  roads 
are  owned  and  operated  by  private  corporations  differs  from 
the  task  of  fixing  the  charges  in  countries  where  the  gov- 
ernment is  the  owner  and  manager.  The  sole  aim  of  the 
corporation  is  to  secure  business  profits;  the  purposes  of  the 
state  are  fiscal  and  social.  The  corporation  will  presumably 
seek  to  discover  and  enforce  such  charges  as  will  in  the  long 
run  yield  maximum  net  profits  to  the  owners  of  its  property; 
the  state  will  be  inclined  to  adopt  rates  and  fares  no  higher 
than  are  required  to  secure  a  small  net  revenue  after  meet- 
ing the  expenses  of  operation  and  maintenance  and  paying 
the  interest  on  the  invested  capital.  In  a  few  instances,  as  in 
the  case  of  Prussia,  state  railroads  have  been  managed  with 
a  view  to  making  them  bear  a  considerable  share  of  the  fiscal 

349 


350  RAILROAD  TRANSPORTATION 

burdens ;  but  even  then  the  charges  levied  on  the  public 
have  been  adjusted  also  with  reference  to  the  accomplish- 
ment of  military,  industrial,  or  other  social  aims. 

The  government  usually  has  the  advantage  of  a  greater 
degree  of  monopoly  in  fixing  its  charges  than  is  possessed 
by  the  corporation.  However,  this  general  rule  has  ex- 
ceptions, and  state  systems  as  well  as  private  ones  are  sub- 
ject to  interregional  competition,  both  domestic  and  in- 
ternational. Exceptions  to  the  rule  are  found  in  countries 
where  the  state  owns  only  a  part  of  the  railroads  and  com- 
petes with  the  corporations  controlling  the  private  lines ; 
also  in  France,  where  each  railroad  corporation  has  been 
granted  by  the  state  a  monopoly  within  the  section  of  coun- 
try served  by  the  company's  lines.  The  tendency  is  to 
change  partial  into  complete  state  ownership,  because  the 
accomplishment  of  the  purposes  of  government  management 
can  best  be  secured  under  the  conditions  of  monopoly  re- 
sulting from  the  elimination  of  interline  competition.  So, 
in  general,  it  may  be  said  that,  although  the  competition 
among  private  railroads  has  many  degrees  of  intensity  and 
the  power  of  the  governments  owning  railways  to  fix 
charges  is  more  or  less  limited,  the  corporations  have  com- 
petitive conditions  and  the  state  has  monopoly  conditions 
to  deal  with  in  adjusting  rates  and  fares. 

It  is  necessary  to  simplify  the  task  of  rate  making  by 
grouping  as  many  as  possible  of  the  several  thousand  kinds 
of  commodities  carried  by  the  railroad  into  a  small  number 
of  classes,  and  charging  like  rates  on  all  articles  in  the  same 
class.  The  necessity  for  classification  becomes  greater  with 
the  increase  in  the  quantity  and  variety  of  traffic  handled. 
In  1886  the  classification  most  used  by  the  railroads  north 
of  the  Ohio  and  Potomac  enumerated  1,000  commodities  and  1 
had  six  classes.  The  following  year  it  was  superseded  j 
by  Official  Classification  No.  1  with  2,800  listed  articles, 
and  the  number  has  now  become  five  times  that  figure  and 


RATE  MAKING  IN  PRACTICE  351 

there  are  14  ratings  or  groups  of  articles.  The  Western 
and  Southern  classifications  have  the  same  number  of 
articles  and  contain  respectively  17  and  16  classes.  This  is 
due  not  only  to  the  addition  of  new  articles  to  the  traffic 
carried  by  the  railroads,  but  also  to  the  more  detailed  clas- 
sification of  commodities,  necessitated  by  the  growing  spe- 
cialization in  manufacturing  and  mercantile  business. 

The  technical  knowledge  required  in  classifying  commodi- 
ties and  the  considerations  which  determine  how  articles  of 
freight  shall  be  grouped  were  well  stated  in  the  Eleventh 
Annual  Report  of  the  Interstate  Commerce  Commission. 
The  officials  intrusted  with  the  work  of  making  classifica- 
tions 

take  into  account  whether  commodities  are  crude,  rough, 
or  finished;  liquid  or  dry;  knocked  down  or  set  up;  loose  or 
in  bulk;  nested  or  in  boxes,  or  otherwise  packed;  if  vegetables, 
whether  green  or  dry,  desiccated  or  evaporated;  the  market 
value  and  shippers'  representations  as  to  their  character;  the 
cost  of  service,  length  and  direction  of  haul ;  the  season  and 
manner  of  shipment;  the  space  occupied  and  weight;  whether 
in  carload  or  less-than-carload  lots ;  the  volume  of  annual  ship- 
ments to  be  calculated  on;  the  sort  of  car  required,  whether 
flat,  gondola,  box,  tank,  or  special ;  whether  ice  or  heat  must 
be  furnished;  the  speed  of  trains  necessary  for  perishable  or 
otherwise  rush  goods;  the  risk  of  handling,  either  to  the  goods 
themselves  or  other  property ;  the  weights,  actual  and  estimated ; 
the  carrier's  risk  or  owner's  release  from  damage  or  loss.  All 
these  circumstances,  bewildering  as  they  appear  to  a  layman, 
are  comparatively  simple  to  the  expert. 

Since  1886  the  railroad  companies  have  intrusted  the  clas- 
sification of  freight  to  the  classification  committee  in  which 
they  are  represented — the  Official,  Southern,  or  Western. 
Each  company  reserves  the  right  to  fix  the  rates  charged 
on  each  class  of  freight,  and  in  theory  does  independently 
determine  the  rates ;  although  there  is  necessarily  a  large 


352  RAILROAD  TRANSPORTATION1 

degree  of  cooperation  among  competing  companies  in  the 
making  of  rates.  Although  the  classification  includes  all  ar- 
ticles, each  railroad  company  reserves  the  right  to  give  cer- 
tain articles  commodity  rates  lower  than  they  would  have 
under  the  class  rates ;  that  is,  each  important  company  trans- 
ports a  large  number  of  articles  at  "commodity  tariffs." 
(Consult  Chapter  X.)  It  has  never  been  possible  to  charge 
all  articles  rates  determined  by  their  classification,  but  the 
railroads  are  trying  to  reduce  the  number  of  exceptions,  and 
as  the  conditions  of  interrailway  competition  become  in- 
creasingly stable,  the  majority  of  the  commodities  now  hav- 
ing a  special  tariff  can  doubtless  be  charged  rates  they  would 
have  under  the  classification,  although  it  is  probable  that 
some  commodities — petroleum,  live  stock,  fresh  fruit,  etc. — 
will  always  be  given  commodity  rates. 

The  classification  of  freight  is  the  first  step  in  rate  mak- 
ing; the  second,  and  more  difficult  one  to  take,  is  the  de- 
termination of  what  the  charges  per  hundred  weight  shall 
be  for  each  class  of  goods  and  for  the  large  number  of  in- 
dividual articles  given  commodity  rates.  A  single  classifi- 
cation applies  to  a  large  territory  but  the  rates  must  be 
worked  out  for  the  traffic  of  each  city,  or  at  least  of  each 
section,  with  every  other  city  or  section  served  by  the  rail- 
way company  making  the  rates.  Every  company  must  pre- 
pare a  large  number  of  "class  tariffs"  and  "commodity 
tariffs"  to  cover  the  freight  handled  between  points  on  its 
own  lines ;  and  in  addition  to  preparing  these  "local"  tariffs, 
it  must  concur  in  a  host  of  "joint  tariffs"  with  other  com- 
panies, applying  to  through  traffic  delivered  to  or  received 
from  connecting  carriers  by  rail  and  water. 

The  making  of  freight  rates  requires  the  service  of  a  large 
and  well-organized  corps  of  expert  officials  and  employees. 
The  administrative  organization  by  which  the  work  is  done 
varies  somewhat  with  different  companies ;  but  the  practices 
Qf  the  several  railways  have  enough  similarity  to  make  pos- 


RATE  MAKING  IN  PRACTICE  .353 

sible  a  generally  applicable  description  of  the  machinery  or 
methods  of  rate  making.  Usually  the  official  rate  maker  is 
the  general  freight  agent,  every  rate  sheet  being  issued  over 
his  signature.  On  lines  where  the  traffic  is  large  the  work 
of  rate  making  may  be  subdivided,  a  general  freight  agent 
having  control  of  the  process  with  regard  to  a  particular 
variety  of  traffic,  such  as  through,  local  or  coal  traffic.  The 
largest  companies  also  have  a  freight  traffic  manager,  to 
whom  the  general  freight  agents  are  subordinate.  In  de- 
ciding difficult  rate  questions  the  freight  traffic  manager  will 
be  consulted,  though,  as  far  as  possible,  this  official  confines 
his  attention  to  matters  affecting  the  general  rate  policy  of 
his  company,  and  to  advising  the  traffic  vice  president  where 
the  company  had  best  seek  to  develop  traffic.  The  vice 
president  in  charge  of  the  traffic  department  may  overrule 
any  of  the  decisions  of  the  general  freight  agents  and  of  the 
freight  traffic  manager,  and  even  the  president  and  board 
of  directors  may  take  part  in  the  final  decisions  regarding 
rate  policy,  especially  when  there  is  a  question  of  a  gen- 
eral increase  or  decrease  of  rates. 

The  general  freight  agents  and  their  supervising  officers 
are  aided  by  a  large  number  of  minor  officials  and  employees, 
who  furnish  information  and  make  recommendations.  Di- 
vision and  district  freight  agents  study  traffic  conditions  in 
the  territory  to  which  they  are  assigned,  freight  solicitors 
study  local  conditions  and  consult  with  shippers,  and  local 
freight  and  station  agents  also  keep  in  touch  with  the  com- 
mercial conditions  of  their  particular  localities,  while  a  num- 
ber of  special  agents  are  employed  to  study  industrial  condi- 
tions and  promote  the  establishment  of  industries  along  the 
lines  of  their  company.  From  the  written  information  sent 
in  by  all  these  officials  and  from  personal  consultation  with 
them  the  rate  making  officials  gather  the  material  upon  which 
to  base  their  decisions  concerning  the  rates  to  be  charged. 

When  the  traffic  officials  set  about  fixing  rates  they  must 


'354,  RAILROAD  TRANSPORTATION 

ascertain  as  nearly  as  possible  what  the  charges  for  various 
services  ought  to  be  and  what  they  may  be.  The  decision 
of  what  ought  to  be  charged  is  affected  by  the  theory  held  in 
regard  to  railroad  charges — whether  the  principle  of  cost 
should  be  given  as  much  weight  as  possible,  whether  the 
value  of  the  service  should  be  the  chief  consideration,  or 
whether  the  value  of  the  article  should  be  the  determining 
factor.  The  traffic  manager  probably  does  not  endeavor  to 
apply  any  one  of  these  theories  strictly,  but  he  is  very  care- 
ful to  inform  himself  as  to  the  ability  of  each  article  to 
pay  the  charges  he  may  decide  upon.  To  estimate  the  ability 
of  an  article  to  pay  freight  a  thorough  knowledge  must  be 
had  of  the  costs  of  production,  of  the  market  prices  at  dif- 
ferent points,  and  of  the  nature  of  the  demand  for  the  ar- 
ticle— whether  the  article  is  considered  a  necessity  or 
whether  some  other  commodity  can  readily  be  substituted 
for  it.  The  service  of  freight  transportation  consists  of  tak- 
ing goods  from  the  producer  or  maker  to  the  user,  and  the 
person  who  fixes  the  rates  for  that  service  must  study  the 
conditions  of  production  and  the  nature  of  the  consumer's 
market.  Transportation  charges  must  be  such  as  will  pro- 
duce a  net  revenue  for  the  carrier  and  will  stimulate  the  de- 
velopment of  traffic. 

In  addition  to  ascertaining  what  the  shipper  is  able  to  pay, 
the  rate  maker  must  know  the  conditions  of  competition  to 
be  met.  There  may  be  rival  carriers  bidding  for  the  same 
traffic;  or,  if  not,  probably  the  producers  and  carriers  of 
other  sections  of  the  country  or  of  other  parts  of  the  world 
are  trying  to  get  the  trade  of  the  markets  reached  by  the 
rate  maker's  road.  The  traffic  manager  will  seek  to  charge 
"what  the  traffic  will  bear"  and  continue  to  increase,  and  he 
will  study  all  factors  affecting  that  problem. 

In  general  it  may  be  said  that  the  decisions  of  a  traffic 
officer  with  respect  to  rates  are  the  resultant  of  four  forces : 
(i)  The  charges  he  makes  must  have  a  proper  relation  to 


RATE  MAKING  IN  PRACTICE  355 

those  made  by  competing  roads  and  routes,  and  in  spite  of 
railway  integration  there  is  much  actual  competition  in  the 
transportation  business;  (2)  the  interest  of  the  shipper  must 
be  considered,  what  he  can  pay  for  transportation  and  what 
charges  will  permit  his  industry  to  flourish  and  the  traffic 
of  the  railroad  to  increase;  (3)  the  revenue  of  the  railway 
must  be  safeguarded.  As  far  as  it  is  practicable,  each  par- 
ticular rate  must  cover  operating  costs  and  contribute  some- 
thing toward  fixed  charges  and  profits,  while  the  rates  as  a 
whole  must  surely  be  kept  on  a  level  that  will  maintain  the 
company  in  a  prosperous  condition.  (4)  The  requirements 
of  the  public  as  a  whole  must  be  complied  with.  In  many 
States  maximum  rates  are  fixed  by  statutes  or  by  commis- 
sions ;  in  other  States  commissions  have  the  power  to  revise 
particular  rates ;  while  the  rates  on  interstate  traffic,  which  is 
vastly  more  important  than  the  traffic  that  does  not  cross 
state  boundaries,  are  subject  to  the  revisory  control  of  the 
Interstate  Commerce  Commission. 

Before  the  days  of  pooling  and  traffic  associations  each 
railroad  company  acted  independently  in  making  rates  and 
fares.  The  schedule  of  charges  was  worked  out  by  the  offi- 
cials of  the  traffic  department  and  accepted  with  or  without 
amendment  by  the  executive  officers  of  the  company ;  but  on 
competitive  business  the  rate  making  was  in  reality  placed 
by  the  company  in  the  hands  of  the  local  agents  and  the  so- 
licitors of  freight,  by  giving  those  officials  the  power  to 
deviate  from  the  scheduled  charges  if  such  action  was  neces- 
sary to  secure  or  hold  traffic.  Every  freight  agent  was  made 
to  feel  that  he  must  get  business,  and  the  methods  he  was 
permitted  or  expected  to  employ  were  often  objectionable. 
Discriminations  of  many  kinds  were  practiced.  With  the 
progress  of  railway  cooperation  more  responsible  methods 
of  making  and  maintaining  rates  were  followed.  Through 
their  pooling  arrangements  and  traffic  associations  the 
companies  sought  to  unite  in  fixing  and  maintaining  such 


356  RAILROAD  TRANSPORTATION 

charges  as  seemed  reasonable  to  the  several  roads  concerned. 

Pooling  became  unlawful  in  1887,  and  all  formal  rate 
agreements  were  declared  illegal  ten  years  later.  Then,  in 
theory  at  least,  it  became  necessary  for  each  company  to 
act  independently.  To  secure  the  maintenance  of  rates  most 
of  the  companies  sought  to  place  the  power  of  fixing  or 
altering  rates  strictly  and  solely  in  the  hands  of  their  higher 
traffic  officials,  though  they  maintained  the  traffic  associa- 
tions, at  the  meetings  of  which  it  was  possible,  without  vio- 
lating the  law,  to  discuss  informally  all  questions  as  to 
changes  in  rates  proposed  by  individual  companies.  These 
measures  had  a  steadying  influence,  but  they  did  not  make 
deviations  from  published  rates  impossible  or  improbable. 
The  Elkins  Act  of  1903  and  the  Hepburn  Act  of  1906,  how- 
ever, made  it  possible  to  restrict  the  giving  of  rebates  and 
since  the  passage  of  these  laws  there  has  been  comparatively 
little  unregulated  competition. 

Rate  making  in  the  United  States  has  presented  many  dif- 
ficult and  complex  problems.  Extensive  territorially  the 
country  possesses  a  wide  variety  of  geographic,  social  and 
economic  conditions  which  have  affected  materially  the  evo- 
lution of  rate  structures.  The  dissimilar  conditions  pre- 
vailing in  the  eastern,  southern,  trans-Mississippi  and  west- 
ern sections  of  the  country  have  brought  into  existence  in 
all  of  these  sections  peculiar  rate  systems,  and  the  effect 
of  international  competition  on  foreign  trade  has  required 
the  creation  of  a  system  of  rates  for  export  and  import  traf- 
fic different  from  the  rates  applying  to  domestic  traffic.  In 
addition  to  these  general  rate  systems  there  have  been  de- 
veloped too  a  multitude  of  minor  rate  structures  suited  to 
the  varying  needs  and  demands  of  local  industrial  conditions. 

The  chief  feature  of  the  rate  system  in  the  territory  north 
of  the  Potomac  and  Ohio  Rivers  and  east  of  the  Mississippi 
is  that  the  primary  factor  considered  in  fixing  all  charges 
is  the  distance  of  the  haul.    Virtually  all  through  rates  are 


RATE  MAKING  IN  PRACTICE  357 

based  on  the  rates  between  New  York  and  Chicago.  Rates 
on  traffic  moving  eastbound  from  points  west  of  the  Buffalo- 
Erie-Pittsburgh  line  to  New  York  and  inland  points  east  of 
that  line,  as  well  as  the  rates  on  westbound  traffic  between 
the  same  regions,  are  a  percentage  of  the  New  York-Chi- 
cago rates,  the  percentage  being  roughly  the  ratio  which  the 
distance  between  any  two  points  in  question  bears  to  the 
distance  between  New  York  and  Chicago.  Rates  on  traffic 
moving  between  points  west  of  the  line  and  the  other  im- 
portant north  Atlantic  ports,  Boston,  Philadelphia  and  Bal- 
timore, vary  from  the  rates  to  and  from  New  York  by  a 
fixed  differential,  the  amount  of  the  differential  depending 
on  the  class  of  traffic ;  while  virtually  all  of  New  England 
has  the  same  rates  on  through  traffic  to  and  from  the  West, 
these  rates  also  being  based  directly  on  the  New  York  rates. 
Tariffs  on  local  traffic  carried  throughout  this  entire  terri- 
tory are  for  the  most  part  distance  tariffs,  and  though  the 
charges  do  not  vary  strictly  in  accordance  with  distance  in 
all  cases,  the  long  and  short  haul  principle  is  generally  ad- 
hered to. 

In  the  territory  south  of  the  Ohio  and  Potomac  Rivera 
and  east  of  the  Mississippi  the  rate  structure  is  known  as 
the  basing-point  system.  Before  railway  lines  were  built 
in  the  South  the  rivers  were  the  main  highways  of  traffic  be- 
tween the  interior  and  the  seaboard,  and  the  chief  centers  of 
trade  were  the  seaports  and  cities  located  on  navigable 
streams.  The  first  railroads  constructed,  naturally,  con- 
nected the  ports  with  inland  markets,  and  active  competition 
at  once  began  between  rival  rail  and  water  routes.  In  order 
to  secure  a  share  of  the  traffic  the  railroads  were  compelled 
to  meet  the  rates  of  the  water  lines  at  competitive  points, 
while  at  non-competitive  points,  they  were  able  to  charge 
higher  rates,  even  though  the  point  at  which  the  higher  rate 
was  charged  might  be  on  the  way  to  the  competitive  center. 
It  was  possible,  and  it  became  the  practice,  for  a  railroad 


358  RAILROAD  TRANSPORTATION 

serving  a  trade  center  at  the  seaboard  or  on  a  river  to  charge 
all  local  points  in  the  district  rates  equal  to  the  sum  of  the 
through  rate  to  the  competitive  point  and  the  local  rate  into 
or  out  of  the  city  where  the  water  route  was  available.  As 
the  railway  net  grew  and  inland  cities  not  situated  on  rivers 
became  important  railway  centers  the  railways  pursued  the 
same  policy  with  respect  to  the  rates  on  traffic  to  and  from 
the  local  non-competitive  points  in  the  district  of  the  com- 
petitive railway  center.  This  system  of  rates  necessarily 
contained  numerous  violations  of  the  long  and  short  haul 
principle.  Some  of  the  discriminations  practiced  were  de- 
cidedly unjust  and  they  have  been  a  prolific  source  of  com- 
plaint before  commissions  and  courts.  When  the  Railway 
Rate  Act  of  1910  was  passed  making  illegal  all  violations  of 
the  long  and  short  haul  principle  which  do  not  receive  the 
sanction  of  the  Interstate  Commerce  Commission,  the  rail- 
way companies  operating  in  the  South  found  it  necessary  to 
make  a  large  number  of  applications  to  the  commission  for 
permission  to  maintain  their  existing  schedules  of  rates. 
Recognizing  the  conditions  which  underlie  the  basing-point 
system,  the  commission  has  wisely  refrained  from  recon- 
structing the  rate  structure  in  an  extensive  manner,  and 
has  confined  its  changes  to  correcting  excessive  discrimina- 
tions. 

In  the  region  west  of  Lake  Michigan  and  of  the  Mis- 
sissippi River  south  of  Wisconsin  a  third  general  system  of 
railway  charges  has  been  developed,  the  salient  character- 
istic of  which  is  a  general  adjustment  of  rates  by  fixed 
differentials  above  or  below  the  rates  at  the  dominating  trade 
centers  and  at  main  river  crossings.  This  general  adjust- 
ment of  rates  by  fixed  differentials  is  supplemented  to  some 
extent  by  making  the  charges  at  secondary  competitive 
points  percentages  of  the  rates  of  primary  centers  of  indus- 
try and  trade.  The  rivalry  of  Chicago  and  St.  Louis  as  dis- 
tributing centers  has  had  a  marked  effect  on  the  rate  struc- 


RATE  MAKING  IN  PRACTICE  359 

ture  in  this  region;  and  the  fact  that  the  railroads  between 
the  Mississippi  and  Missouri  Rivers  for  a  long  time  had  no 
physical  connection  with  roads  east  or  west  of  the  territory 
inclosed  between  the  rivers  gave  the  river-to-river  rates  a 
position  of  dominating  influence  in  the  general  fabric.  The 
rates  between  this  section  and  the  regions  west  and  south- 
west to  the  mountains  are  in  general  such  combinations  as 
will  equalize  competitive  conditions  among  rival  producing 
sections.  The  State  of  Texas  has  a  unique  system  of 
"graded  and  maximum"  rates  upon  intrastate  traffic,  the 
rates  rising  in  direct  ratio  to  distance  until  a  certain  maxi- 
mum amount  is  reached,  after  which  they  are  the  same  for 
all  longer  distances.  On  long-distance  interstate  traffic  en- 
tering and  leaving  Texas  the  rates  are  virtually  the  same 
throughout  most  of  the  State. 

The  rates  applying  to  traffic  between  the  eastern  part  of 
the  United  States  and  the  Rocky  Mountain  and  Pacific 
States,  or  transcontinental  freight  rates,  have  been  strongly 
influenced  by  the  competition  of  ocean  carriers  operating 
by  way  of  the  Isthmus  of  Panama  and  around  South  Amer- 
ica. Out  of  the  conditions  created  by  this  competition  a 
rate  system  has  been  developed  with  the  following  main 
features  :  ( i )  Blanket  or  common  rates  are  given  on  west- 
bound traffic  from  most  points  east  of  the  Mississippi  River 
to  the  Pacific  coast.  Blanket  rates  also  apply  to  some  of  the 
traffic  moving  from  the  western  coast  to  points  east  of  the 
Mississippi  River  though  (2)  upon  most  eastbound  and 
upon  some  westbound  traffic,  graded  zone  tariffs  have  been 
established.  (3)  The  rates  on  traffic  westbound  to  inter- 
mediate points  in  the  Rocky  Mountains  have  usually  been 
higher  than  the  through  tariffs,  the  higher  charge  being  fixed 
by  the  addition  to  the  through  rate  of  either  fixed  amounts 
or  the  local  rates  back  from  the  Pacific  terminals.  The  rates 
to  the  intermediate  points  violate  the  long  and  short  haul 
principle  and  have  been  a  source  of  much  complaint,  but  the 


360  RAILROAD  TRANSPORTATION 

Interstate  Commerce  Commission  has  frequently  sanctioned 
such  discrimination.  During  the  World  War  the  absence  of 
competition  via  the  Panama  Canal  resulted  in  the  raising  of 
rates  to  terminal  points  to  an  equality  with  rates  to  moun- 
tain points.  With  water  competition  now  restored  it  is 
probable  that  many  terminal  rates  will  again  be  reduced. 

On  many  commodities  imported  into  and  exported  from 
the  United  States  the  rates  between  seaports  and  interior 
markets  are  less  than  the  rates  on  the  same  commodities 
shipped  in  domestic  trade.  The  wide  variety  of  routes 
which  this  traffic  may  take,  the  low  rates  of  ocean  trans- 
portation, and  the  trade  rivalry  of  seaports  are  the  chief 
conditions  which  act  to  bring  about  this  result.  Lower  rates 
on  certain  imported  goods  have  served  to  limit  the  effect 
of  tariff  duties  and  have  benefited  manufacturers  and  traders 
in  many  sections  of  the  country. 

The  machinery  for  the  making  of  the  passenger  fares  of 
a  large  railroad  company  is  analogous  to  that  which  estab- 
lishes rates  on  freight  traffic.  The  general  passenger  agents 
have  direct  charge  of  making  the  fares,  one  agent  usually 
directing  the  work  for  local  traffic  and  another  directing  the 
work  for  through  traffic.  As  is  the  case  with  the  rate  deci- 
sions of  the  general  freight  agents,  the  decisions  of  the  gen- 
eral passenger  agents  may  be  overruled,  the  higher  super- 
vising officials  being  the  passenger  traffic  manager,  and  the 
traffic  vice  president.  The  president  and  board  of  directors 
may  direct  the  policy  of  the  company  in  regard  to  fares, 
though  in  practice  they  interfere  but  seldom.  For  the  infor- 
mation upon  which  to  base  decisions  concerning  fares  to  be 
charged  the  general  passenger  agents  depend  upon  district 
and  division  passenger  agents,  local  agents,  solicitors,  and 
special  agents.  Joint  fares  are  made  in  cooperation  with 
the  traffic  officers  of  connecting  lines  and  fares  on  competi- 
tive traffic  are  subject  to  the  informal  cooperative  action 
of  passenger  traffic  associations. 


RATE  MAKING  IN  PRACTICE  3G1 

The  problem  of  fixing  passenger  charges  differs  in  several 
particulars  from  the  task  of  making  freight  rates.  In  the 
first  place,  classification  in  the  passenger  service  is  a  simple 
matter,  and  when  once  decided  upon  presents  no  further  dif- 
ficulty, as  does  the  classification  of  freight,  which  is  a  peren- 
nial question  requiring  daily  consideration.  Competition  in 
the  passenger  service  is  less  keen  than  in  the  freight  service, 
and  of  a  different  nature.  In  the  freight  business  it  is  the 
rivalry  of  producers  and  shippers  that  does  most  to  force 
down  rates ;  whereas,  in  the  passenger  service  no  such  pres- 
sure is  exerted.  Travelers  do  not  singly,  or  collectively,  to 
much  extent,  bargain  for  low  fares.  The  ordinary  ticket 
represents  a  small  purchase — averaging  barely  66  cents  in 
the  United  States  and  much  less  in  most  other  countries^ 
and  there  is  but  little  incentive  for  the  passenger  to  en- 
deavor to  secure  a  special  fare.  Moreover,  the  struggle 
among  railroad  companies  to  secure  the  competitive  passen- 
ger business  is  far  less  intense  than  is  their  effort  to  attract 
freight  traffic.  The  gross  revenue  derived  by  the  railroads 
of  the  United  States  from  their  freight  business  is  two  and 
six-tenths  times  the  receipts  from  the  passenger  train  serv- 
ice, and  if  it  were  possible  to  ascertain  the  net  profits  at- 
tributable to  each  branch  of  the  service,  it  would  be  found 
that  the  profits  assignable  to  freight  transportation  are  more 
than  two  and  six-tenths  times  the  net  profits  secured  from 
carrying  passengers. 

Another  reason  why  the  railroads  are  less  eager  to  secure 
passenger  business  than  freight  traffic  is  that  reductions  in 
charges — the  most  usual  way  of  increasing  traffic — are  less 
effective  in  stimulating  ordinary  travel  than  they  are  in  in- 
creasing freight  movement.  With  the  exception  of  the 
short-trip  excursion  travel,  the  cost  of  the  railroad  ticket 
is  but  a  part,  and  usually  the  minor  portion,  of  the  expenses 
of  the  passenger.  Most  persons  travel  for  business  pur- 
poses, and  the  cost  of  the  railroad  ticket  has  but  little  weight 


362  RAILROAD  TRANSPORTATION 

with  them.  There  is,  however,  a  large  and  growing  amount 
of  traveling  for  pleasure,  and  that  is  capable  of  stimulation 
by  reduction  in  fares.  Indeed,  as  was  said  in  the  chapter 
on  The  Passenger  Service,  the  American  railroads  have  done 
much  less  than  European  experience  has  shown  to  be  pos- 
sible in  the  development  of  low-fare  travel. 

Though  the  struggle  of  rival  lines  for  the  passenger  busi- 
ness is  less  intense  and  unintermittent  than  is  true  of  the 
freight  traffic,  the  railways  have  always  sought  to  develop 
their  competitive  and  non-competitive  passenger  traffic;  but 
the  intercompetition  of  American  roads  has  done  more  to 
increase  the  speed,  comfort,  safety,  and  frequency  of  the 
passenger  service  than  to  lower  the  fares.  Passenger 
charges  have  declined  somewhat,  but  relatively  little  as  com- 
pared with  freight  rates.  The  average  earnings  per 
passenger  per  mile  for  the  railroads  of  the  United  States 
as  a  whole  were  but  6  per  cent  less  in  1901  than  they  were 
in  1 891  ;  whereas,  the  decline  in  ton-mile  earnings  had  been 
over  16  per  cent.  In  the  year  1906  the  passenger-mile  reve- 
nue, 2.003  cents,  was  the  same  as  it  was  in  1900,  and  in  1914 
it  amounted  to  1.982  cents.  Since  1914  the  charges  for 
passenger  travel  have  been  greatly  increased.  The  United 
States  Railroad  Administration  raised  the  general  level  of 
fares  to  3  cents  a  mile,  and  the  Interstate  Commerce  Com- 
mission permitted  a  further  increase  of  20  per  cent  to 
become  effective  in  August,  1920. 

The  traffic  officials  are  usually  under  less  pressure  in  fix- 
ing fares  than  in  deciding  on  rates.  There  have  been  wars 
over  competitive  passenger  traffic,  some  of  which  have  been 
violent ;  but  their  effects  have  been  slight  as  compared  with 
those  resulting  from  wars  involving  freight  rates.  Dis- 
criminations in  passenger  charges  have  been  and  are  fewer 
and  of  less  consequence  than  those  connected  with  freight 
rates.  It  has  been  easier  for  the  railways  to  cooperate  in 
making  fares  than  in  making  rates, 


RATE  MAKING  IN  PRACTICE  363 

The  general  tariff  policy  of  the  railways  of  the  United 
States  has  been  determined  almost  entirely  by  commercial 
considerations.  This  has  been  so  both  because  the  roads  are 
owned  by  private  corporations,  and  for  the  reason  that  the 
Government  has  as  yet  done  little  to  require  the  companies 
to  construct  their  tariffs  with  reference  to  the  accomplish- 
ment of  political  or  social  aims.  The  same  is  true  of  the 
railroads  of  Great  Britain ;  but  in  France,  although  the  lines 
are  owned  and  operated  by  corporations,  the  Government 
has  aided  the  companies  largely,  and  has  influenced  their 
tariff  policy  very  considerably.  In  Austria  and  Hungary 
the  governments  have  nationalized  most  of  the  railroads, 
and  have  put  in  force  a  system  of  charges  intended  to  in- 
crease travel,  and  to  bring  the  political  and  commercial 
cities  of  the  country  into  closer  touch  with  the  outlying  por- 
tions of  the  national  domain.  In  the  German  states,  where 
most  railroads  are  owned  and  managed  by  the  Government, 
rates  and  fares  have  been  fixed  with  a  view  to  securing  a 
surplus  of  net  revenue,  to  protecting  German  industries 
against  foreign  competition,  to  aiding  in  the  exportation  of 
German  productions,  to  strengthening  the  efficiency  of  the 
military  forces  of  the  state,  and  to  furthering  numerous 
philanthropic  and  educational  aims.  In  Australia  and  India 
the  governments  have  built  roads  mainly  to  promote  the 
industrial  development  of  the  countries. 

Different  practices  have  prevailed  in  different  countries  as 
regards  the  state's  policy  concerning  railway  tariffs.  In  all 
countries,  whether  the  railroads  are  owned  by  the  state  or 
by  corporations,  there  is  a  tendency  to  give  increasing  weight 
to  social  considerations  in  deciding  upon  railroad  tariff  poli- 
cies. This  is  true  even  in  the  United  States,  where,  until 
within  a  few  years,  the  Government  permitted  the  railroad 
corporations,  without  state  interference,  to  make  such  rates 
and  fares  as  they  thought  would  promote  their  traffic  or 
revenue. 


364  RAILROAD  TRANSPORTATION 

REFERENCES 

Report  of  Industrial  Commission,  XIX,  349-397  (1902). 
Weyl,  W.  E.     "Causes  Affecting  Rates  and  Fares,"  in  Annals 

of  the  American  Academy  of  Political  and  Social  Science, 

XI,  1898. 
McPherson,  L.  G.     Railroad  Freight  Rates   (1909). 
Johnson  and  Huebner.    Railroad  Traffic  and  Rates,  I,  chaps. 

xvii-xxv;  II,  chaps,  xxxiv-xxxvi   (1911). 
Ripley,   W.   Z.     Railroads:  Rates  and  Regulation,  chaps,   iv. 

and  v   (1912). 
Consult  also  the  references  to  Hadley,  Seligman,  and  Weyl  at 

the  close  of  the  preceding  chapter. 


PART   IV 
THE  RAILROADS  AND  THE  STATE 


CHAPTER  XXIII 

THE   RAILROADS    AND   THE   STATE.     REGULATION    IN 
THE  UNITED  KINGDOM  AND  GERMANY 

The  twofold  relation  of  the  government  to  the  railroads,  367.  The 
form  which  the  State's  relation  to  railroads  may  assume,  370. 
Railroads  of  the  United  Kingdom  received  no  state  aid,  371. 
Early  competition  and  consolidation  in  Great  Britain,  2>72- 
Railroad  cooperation,  273-  British  regulation  of  railroad  con- 
solidation, 374.  Early  regulation  of  railroad  rates  in  Great 
Britain,  375.  The  Act  of  1854,  378.  The  Act  of  1873,  379- 
The  Railway  and  Canal  Traffic  Act  of  1888,  381.  Maximum 
rate  laws,  383.  The  Act  of  1894,  384.  British  railroads  and 
the  war,  385.  The  Ministry  of  Transport  Act  of  1919,  387. 
The  Railways  Act  of  1921,  389.  Early  railway  policy  in  Ger- 
many, 390.  The  nationalization  of  Prussian  railways,  394. 
The  Prussian  railway  organization,  395.  The  results  of  rail- 
way nationalization  in  Prussia,  398.  German  railways  and  the 
war,  400.  The  present  railway  policy  of  Germany,  400.  Rail- 
way policies  of  other  countries,  402.  Conditions  which  deter- 
mine the  railway  policy  of  a  state,  404.     References,  405. 

The  government's  relation  to  the  railroads  is  necessarily 
twofold :  that  of  aiding  and  of  regulating  or  controlling. 
The  extent  and  form  of  the  assistance  given  by  the  state  to 
nJlroad  building  and  operation  varies  with  different  coun- 
tries. The  people  of  some  nations  prefer  to  have  their  rail- 
roads built  and  managed  directly  by  the  government ;  in 
other  nations  the  preference  is  for  the  construction  and  con- 
trol by  corporations  chartered  by  the  state ;  but  even  in  the 
latter  case  the  aid  of  the  state  is  necessary.  The  state  must 
grant  to  the  corporation  "the  right  of  eminent  domain"  in 
order  to  enable  the  corporation  to  secure  the  real  estate 
required  for  its  roadway  and  structures.     Besides  aiding 

367 


368  RAILROAD  TRANSPORTATION 

the  corporation  in  this  manner,  the  government — local,  state, 
and  national — has  frequently  contributed  or  advanced  a 
part  of  the  capital  required  by  the  company  for  construction 
purposes,  and  in  some  foreign  countries  the  state  has  guar- 
anteed to  private  investors  a  stipulated  minimum  rate  of 
interest  or  dividend  on  their  investments. 

Transportation  being  a  service  of  a  public  nature,  it  is 
the  duty  of  the  government  to  regulate  its  performance. 
This  regulation  may  be  accomplished  by  state  ownership  of 
transportation  agencies  or  by  the  governmental  supervision 
of  those  agencies  in  the  ownership  and  under  the  manage- 
ment of  private  persons  or  corporations  to  whom  the  state 
may  have  intrusted  the  business  of  transportation.  Some 
transportation  agencies  are  invariably  owned  by  the  govern- 
ment; in  regard  to  the  others  the  practice  of  the  different 
states  varies.  The  postal  service,  for  instance,  is  every- 
where a  state  monopoly,  the  highways  are  usually  supplied 
by  the  government;  but  the  telegraphs  and  railroads  are 
owned  and  operated  sometimes  by  the  state  and  sometimes 
by  chartered  corporations. 

State  ownership  gives  the  government  complete  power  of 
control;  and  the  question  of  regulating  transportation  be- 
comes one  of  defining  and  adhering  to  the  proper  policy 
which  the  government  should  follow  in  managing  the  agen- 
cies which  it  owns.  However,  when  one  comes  to  analyze 
closely  the  principles  which  should  prevail  in  the  relations 
of  the  government  to  railroads  and  other  transportation 
facilities,  it  becomes  evident  that  whether  the  transporta- 
tion service  is  performed  directly  by  the  state  or  its  execu- 
tion is  intrusted  by  the  state  to  individuals  and  to  cor- 
porations, it  is  equally  the  duty  of  the  state  to  make  sure 
that  the  service  shall  be  so  performed  that  the  greatest  pos- 
sible measure  of  justice  may  be  secured  by  each  citizen. 
The  ideal  of  the  greatest  good  to  the  greatest  number  must 
everywhere  pervade  the  service;  if  the  state  performs  the 


STATE  REGULATION  IN  ENGLAND       369 

service  it  must  follow  that  ideal  in  its  management;  if 
corporations  act  for  the  state,  they  must  be  required  by  the 
state  to  adhere  to  that  general  principle.  Unrestrained  in- 
dividualism in  railway  management  is  a  principle  which 
corporations  cannot  be  permitted  to  follow. 

The  history  of  the  relations  of  the  railways  with  each 
other  in  the  United  States,  an  account  of  which  was  given 
in  preceding  chapters,  shows  very  clearly  that  the  state 
cannot  safely  rely  upon  the  competition  of  privately  owned 
railroads  with  each  other  to  regulate  transportation  by  rail. 
The  general  adherence  of  the  American  public  to  that 
fallacy  during  the  first  four  decades  of  railroad  history 
resulted  in  the  origin  and  development  of  most  of  the  ob- 
jectionable practices  which  have  constituted  the  so-called 
"railway  problem."  Moreover,  experience  also  shows  that 
the  public  must  give  heed  to  the  manner  in  which  the  state 
performs  its  service  when  the  railroads  are  owned  and  op- 
erated by  the  government.  When  a  state  owns  a  part  of 
the  railway  net  of  a  country  and  competes  with  private 
companies,  it  is  tempted  to  resort  to  the  practices  commonly 
adopted  by  competing  companies.  If  the  state  manages  all 
the  railway  lines,  its  railway  policy  may  be  determined  with 
regard  to  the  fiscal  needs  of  the  government,  or  may  be 
made  a  part  of  a  system  of  protecting  home  industries,  or 
the  railroads  may  be  built  and  operated  so  as  to  further  the 
military  power  of  the  country.  These  may  all  be  worthy 
purposes,  but  they  prevent  the  development  of  the  trans- 
portation system  best  adapted  to  general  economic  needs 
of  the  country.  In  other  words,  the  state  may  not  make  the 
technical  development  of  its  railroads  and  the  increase  of  the 
mileage  and  the  facilities  the  first  considerations,  as  cor- 
porations would. 

Although  some  form  of  governmental  control  of  railroads 
is  now  universally  recognized  to  be  a  necessity,  it  is  by  no 
means  easy  to  decide  what  form  of  control  will  most  conduce 


370  RAILROAD  TRANSPORTATION 

to  the  public  benefit.  Whether  the  regulation  of  railway 
transportation  by  our  Federal  Government  and  the  States 
should  take  the  form  of  the  purchase  and  operation  of 
the  railroads  under  their  jurisdiction  is  a  question  that  has 
been  much  discussed.  It  is,  indeed,  a  difficult  question, 
and,  before  considering  it,  we  shall  do  well  to  review  the  re- 
lation of  the  railways  to  the  state  in  some  of  the  larger 
foreign  countries,  and  study  our  own  experiences  as  regards 
railway  regulation. 

The  state's  relation  to  railroads,  in  the  matter  of  regu- 
lation and  control,  may  take  one  of  four  different  forms: 
(i)  Private  ownership  and  private  operation  of  railroads, 
the  state  chartering  corporations  to  act  as  its  agents  for 
the  performance  of  railroad  transportation;  (2)  private 
ownership  and  government  operation,  the  state  leasing  the 
lines  from  the  corporations  which  have  invested  the  capital 
in  building  the  roads  ;  (3)  government  ownership  and  opera- 
tion; (4)  government  ownership  and  corporate  operation, 
the  state  leasing  its  roads  to  corporations.  The  workings 
of  each  of  these  four  forms  of  relationship  have  been 
illustrated  by  the  experiences  of  one  or  more  important 
countries.  The  tendency  is  everywhere  either  toward  a 
more  careful  public  regulation  of  private  roads  or  toward 
the  nationalization  of  the  railroads  and  their  management 
by  the  government. 

Of  the  leading  European  countries  the  United  Kingdom 
has  carried  out  most  consistently  the  policy  of  private  own-| 
ership  and  operation.  The  history  of  railway  development 
in  the  United  Kingdom  seems  especially  worthy  of  study 
by  those  who  wish  to  understand  and  pass  judgment  on  the 
American  policy  of  railroad  regulation.  The  system  of 
regulation  established  by  the  British  Government  is  more 
instructive  for  us  than  that  of  any  other  foreign  country, 
because  the  conditions  of  ownership  and  management  are 


STATE  REGULATION  IN  ENGLAND       371 

(similar  to  those  in  this  country  and  because  the  laws  of 
both  countries  have  been  designed  to  meet  virtually  the 
same  problems.  In  some  instances  our  laws  have  been 
modeled  in  a  large  measure  after  those  of  England,  though 
on  the  whole  the  systems  of  regulation  in  the  two  coun- 
tries have  been  dissimilar. 

Unlike  most  countries,  Great  Britain  did  not  aid  private 
corporations  in  the  construction  of  early  railroads.1  The 
country  was  so  thickly  settled  and  the  volume  of  business 
for  rail  transportation  was  so  large  that  it  was  virtually 
certain  that  the  railroads  when  built  would  secure  a  re- 
munerative traffic.  Capitalists  and  investors  were  more 
than  willing  to  provide  all  the  funds  needed.  Indeed, 
the  British  Government  felt  that  the  country  was  so  well 
supplied  with  transportation  facilities  by  its  close  network 
of  canals  and  improved  highways  that  a  company  pro- 
posing to  build  a  railway  was  required  to  convince  Parlia- 
ment of  the  public  necessity  for  the  new  road.  Extreme 
opposition  was  always  met  with  from  the  individuals  and 
corporations  engaged  in  transportation  by  canals  and  high- 
ways, and  the  problem  of  securing  a  railway  charter  was  in 
the  early  days  exceedingly  difficult.  Until  1864  no  railway 
could  be  constructed  in  Great  Britain  except  by  special 
authorization  of  Parliament,2  and  one  of  the  large  items 
of  expense  of  the  early  corporations  was  the  cost  of  securing 
charters.  The  money  spent  for  this  purpose  went  mainly 
as   fees  to  attorneys,  who  were  employed  to  inform  the 

JThe  statement  applies  to  the  railroads  in  Great  Britain.  Some 
railroads  in  Ireland  received  government  aid. 

2  A  Railway  Construction  Facilities  Act  was  passed  in  1864 
(amended  in  1870)  by  which  the  Board  of  Trade  are  authorized  to 
grant  a  certificate  of  permission  to  corporations  or  individuals  pro- 
posing the  construction  of  a  railway  line.  If,  however,  there  is  any 
objection  to  the  granting  of  the  certificate  by  the  Board  of  Trade, 
authorization  must  be  secured  from  Parliament.    Such  certificates  as 


372  RAILROAD  TRANSPORTATION 

parliamentary  committees  as  to  the  desirability  of  the  pro- 
posed work.  These  expenses  appeared  subsequently  in  the 
capital  account  of  the  railway  companies,  and  they  are 
one  of  the  minor  causes  of  the  high  capitalization  of  British 
railways. 

As  was  the  case  in  the  United  States  the  early  railways 
were  short  lines,  many  of  which  were  competitive.  In 
1843,  twenty  years  after  Parliament  granted  the  first  rail- 
way charter,  there  were  70  railway  companies  in  Great 
Britain  with  a  total  mileage  of  only  2,100  miles,  or  an 
average  to  each  company  of  30  miles.  During  the  next  four 
years  more  than  600  small  lines  were  chartered,  and  for  a 
time  the  average  length  of  line  actually  decreased.  Com- 
petition among  many  of  these  roads  was  for  a  time  very 
active,  but  the  process  of  amalgamation  and  combination 
was  soon  begun  among  both  competing  and  connecting  lines. 
The  process,  once  started,  proceeded  rapidly  and  now  for 
many  years  by  far  the  greatest  part  of  the  railway  business 
of  England  has  been  under  the  control  of  ten  large  com- 
panies, each  serving  a  fairly  distinct  section  of  the  country. 
Many  of  the  larger  commercial  centers  of  the  country  are 
served  by  two  or  more  of  these  companies,  but  arrange- 
ments for  controlling  competition  for  the  traffic  of  such 
centers  have  always  been  worked  out. 

Several  means  of  consolidation  and  combination  have 
been  employed  by  the  English  railway  companies.  Mergers 
and  leases  have  been  common,  and  other  methods  have  been 
used,  such  as  the  "working  union"  which  is  similar  to  a 
merger,  the  "working  agreement"  which  is  similar  to  a 
lease,  and  "running  powers,"  by  which  one  company  is  au- 
thorized to  run  its  locomotives  and  cars  over  the  lines  of 

are  granted  by  the  Board  of  Trade  must  be  submitted  to  Parliament 
and  if  Parliament  takes  no  adverse  action  within  six  weeks,  the 
certificate  becomes  effective.  Very  little  use  has  been  made  of  the 
provisions  of  this  law. 


STATE  REGULATION  IN  ENGLAND       373 

another  company.  In  cases  where  it  has  been  impossible 
to  bring  about  the  consolidation  of  competing  lines  in  one 
form  or  another,  such  lines  have  combined  in  various  ways 
to  avoid  competition.  The  most  common  forms  of  com- 
bination among  competing  roads  have  been  the  money  pool 
and  the  formal  rate  agreement.  Numerous  "conferences" 
of  British  railways  have  been  established  since  i860  for  the 
purpose  of  making  agreements  respecting  rates  on  com- 
petitive traffic,  and  pooling  has  been  practiced  extensively 
by  British  railways  since  a  very  early  day  in  their  history. 

One  important  feature  of  British  railway  organization 
which  has  enabled  the  companies  to  secure  harmony  of 
action  in  their  competitive  relations  has  been  the  Railway 
Clearing  House.  This  institution  was  established  in  1847  as 
a  voluntary  association  of  a  few  companies  for  the  pur- 
pose of  establishing  joint  arrangements  with  regard  to 
caring  for  interline  traffic  and  adjusting  the  division  of 
rates.  Three  years  later  it  was  incorporated  by  Parliament. 
Other  railway  companies  soon  became  members  of  the  asso- 
ciation, and  it  quickly  became  a  prominent  and  valuable 
feature  of  the  British  railway  system,  serving  as  an  agency 
through  which  the  business  and  financial  relations  of  con- 
necting lines  could  be  adjusted,  and  through  which  satis- 
factory arrangements  concerning  competitive  business  could 
be  worked  out  by  rival  companies.  Most  of  the  "con- 
ferences" of  competing  lines  have  their  meetings  at  the 
Clearing  House  in  London,  and  the  associations  are  known 
generally  as  "clearing  house  conferences." 

In  the  United  Kingdom,  as  in  the  United  States,  railroad 
regulation  has  been  a  part  of  the  general  problem  of  con- 
trolling business  monopolies.  In  both  countries  the  law 
makers  considered  it  necessary,  in  dealing  with  the  rail- 
roads, to  place  certain  checks  upon  the  development  of  rail- 
road consolidation  and  to  undertake  the  regulation  of  rail- 
road rates. 


37i  RAILROAD  TRANSPORTATION 

The  British  Parliament  has  never  enacted  a  law  forbid- 
ding the  consolidation  of  competing  railroads.  On  the  other 
hand  the  railroad  corporations  have  not  been  permitted  to 
combine  at  will.  Until  1921  the  British  policy  with  le- 
spect  to  the  actual  merger  of  railroad  companies  was  to 
require  the  express  authorization  of  Parliament  for  each 
consolidation.  Destructive  competition  between  rival  com- 
panies led  to  movements,  on  several  occasions,  to  have 
Parliament  enact  laws  giving  to  the  railroad  companies  gen- 
eral authority  to  effect  any  desired  combination.  In  1846 
and  again  in  1853  committees  of  the  House  of  Commons 
investigated  the  British  railroad  situation,  and  though  in 
each  case  the  committee  went  on  record  as  not  being  op- 
posed to  the  principle  of  railroad  consolidation,  both  rec- 
ommended that  each  proposal  for  a  railroad  merger  be 
considered  on  its  merits  and  that  no  general  authority  to 
effect  combinations  be  granted.  A  slight  deviation  from 
this  policy  came  in  1863,  when  a  law  was  enacted  author- 
izing two  or  more  railroads  to  enter  into  "working  agree- 
ments" without  the  specific  sanction  of  Parliament,  provided 
such  agreements  should  be  ratified  by  the  shareholders  of  the 
interested  companies  and  approved  by  the  Board  of  Trade. 

In  1 92 1  the  British  policy  with  respect  to  railway  consoli- 
dation underwent  a  complete  transformation.  As  a  measure 
of  reconstruction,  following  the  termination  of  government 
control  of  railroads,  a  Railways  Act  was  passed,  one  of  the 
cardinal  features  of  which  was  the  requirement  that  the 
railroads  of  Great  Britain  should  be  amalgamated  into  four 
great  systems,  the  Southern  group,  the  Western  group,  the 
North  Western,  Midland  and  West  Scottish  group,  and  the 
North  Eastern,  Midland  and  East  Scottish  group. 

Though  the  process  of  railway  consolidation  in  the  United 
Kingdom  was  for  years  impeded  by  the  necessity  of  se- 
curing special  sanction  from  governmental  authority,  there 
was  practically   no  interference  with  the  measures  taken 


STATE  REGULATION  IN  ENGLAND       375 

by  separate  rival  lines  to  control  competition.  No  attempt 
has  ever  been  made  to  question  the  legality  of  rate  agree- 
ments, and  pooling  has  never  been  prohibited  by  law.  The 
validity  of  several  early  pooling  agreements  was  discussed 
in  English  courts  and  it  was  thought  by  some  that  such 
agreements  were  illegal  because  they  rested  on  no  statutory 
or  charter  rights  of  the  companies.  However,  a  definite 
court  decision  was  made  in  1861  upholding  a  pool  which 
had  been  organized  by  several  railroads  engaged  in  handling 
traffic  between  Scotland  and  England,  and  since  that  time 
pooling  agreements  affecting  competitive  traffic  have  been 
accepted  as  legal. 

In  the  regulation  of  railroad  rates  the  British  Govern- 
ment long  followed  the  general  plan  of  establishing  maxi- 
mum rates  by  statutory  enactment,  leaving  the  enforcement 
of  the  statutes  to  the  ordinary  law  courts  or  to  various  spe- 
cial boards  and  tribunals.  At  the  time  of  the  introduction 
of  railroads  into  the  United  Kingdom  there  was  general 
adherence  to  the  doctrine  of  non-interference  on  the  part 
of  the  state  with  economic  activities.  It  was  thought  that 
the  state  should  leave  industry  and  transportation  alone 
and  that  competition  among  rival  producers  and  carriers 
would  regulate  prices  and  charges  in  a  satisfactory  manner. 
However,  Parliament  thought  it  might  be  possible  for  the 
owners  of  the  railroads  to  charge  those  who  used  the  lines 
more  than  would  be  just  and  from  the  outset  the  maximum 
tolls  which  might  be  charged  were  stipulated  in  railway 
charters. 

The  earliest  charters  were  copied,  with  little  modifica- 
tion, from  the  charters  that  Parliament  had  for  years  been 
granting  to  turnpike  and  canal  companies.  It  was  assumed 
that  the  railroad  was  only  an  improved  highway,  and  that 
the  railway  companies  would  merely  own  the  track,  charg- 
ing tolls  to  carriers  and  others  who  would  use  it  for  their 
horses  and  vehicles,  in  the  same  way  that  tolls  were  charged 


376  RAILROAD  TRANSPORTATION 

for  the  use  of  canals  and  roads.  Soon,  however,  the  rail- 
ways were  given  permission  to  supply  tractive  power  them- 
selves and  tolls  for  this  service  were  authorized  in  the 
charters,  and  a  short  time  later  the  companies  were  em- 
powered to  act  as  carriers  and  collect  a  third  charge  for 
their  services  in  conveying  traffic  from  place  to  place.  As 
the  railways  came  to  engage  more  extensively  in  the  carry- 
ing business  and  acquired  a  monopoly  of  the  tractive  power 
on  their  own  lines  the  charges  for  all  three  services  were 
included  in  single  tolls,  the  maximum  amounts  of  which 
were  stipulated  in  all  the  charters. 

It  was  soon  discovered  that  it  would  be  unsafe  to  rely 
upon  the  forces  of  competition  and  upon  charter  maxima 
for    protection    against    unjust    charges    and    unreasonable 
discriminations.      Competition   was   quickly   brought   under 
control  either  by  the  consolidation  of  rival  lines  or  by  the 
establishment  of  rate  agreements  and  pools.    The  maximum 
rates  of  the  charters  afforded  no  protection  whatever  against 
unreasonable  discriminations,  inasmuch  as  a  railway  com- 
pany could  charge  various  shippers  as  many  different  rates 
as  it  chose  as  long  as  no  rate  was  above  the  stipulated  max- 
imum.    Moreover,  the  acts  granting  charters  and  establish- 
ing schedules  of  maximum  rates  became  so  numerous  that 
it  was  almost  impossible  in  many  cases  to  ascertain  what 
the  legal  maximum  rates  really  were,  though  investigations 
usually  revealed  that  the  rates  actually  charged  for  the  con- 
veyance  of    traffic    were   lower   than   the    maximum    rates 
stipulated  by  special  acts.     However,  all  railway  companies 
adopted  the  practice  of  imposing  extra  charges  for  terminal 
services  of  loading,  unloading,  collection  and  delivery,  and 
by  this  means  actual  rates  on  freight  shipments  were  some- 
times made  higher  than  the  maximum  charges  established 
by  law. 

The  first  general  law  in  any  way  affecting  the  regulation 
of  railway  charges  was  passed  in  1840.     It  authorized  the 


STATE  REGULATION  IN  ENGLAND       377 

Board  of  Trade  to  enforce  all  Acts  of  Parliament  regulating 
railways,  including  the  special  acts  granting  charters  to  com- 
panies. Under  the  authority  of  this  law  the  Board  of  Trade 
could  prevent  railway  companies  from  charging  tolls  in  ex- 
cess of  the  maxima  allowed  in  their  charters.  This  pro- 
vision had  no  effect  whatever  on  the  level  of  rates. 

In  1844  Parliament  passed  the  Cheap  Trains  Act,  the 
author  of  which  was  William  E.  Gladstone.  This  measure 
directed  the  railroads  to  run  daily  in  each  direction  on  their 
lines  a  train  carrying  third-class  passengers,  at  a  fare  not  to 
exceed  one  penny  a  mile.  Such  trains  were  to  stop  at  all 
stations  if  necessary,  move  at  a  speed  of  not  less  than  12 
miles  an  hour,  including  stops,  and  the  coaches  for  third- 
class  passengers  were  to  afford  ample  protection  from  the 
weather.  The  Board  of  Trade  were  given  the  power  to 
determine  the  schedule  of  the  trains  and  also  were  author- 
ized, if  they  saw  fit,  to  dispense  with  any  of  the  regulations 
concerning  the  service,  except  that  respecting  the  fare.  The 
railway  companies  were  exempted  from  taxation  of  the 
gross  receipts  derived  from  this  service. 

The  next  year  (1845)  witnessed  the  enactment  of  the 
first  law  applying  in  general  terms  to  railway  rates.  A 
section  of  the  Railways  Clauses  Consolidation  Act  pro- 
vided that  tolls  should  be  charged  "equally  to  all  persons" 
on  traffic  carried  "over  the  same  portion  of  the  line  of 
railway  under  the  same  circumstances."  Inasmuch  as  such 
traffic  rarely  existed  this  regulation  had  virtually  no  effect 
on  charges,  and  railway  companies  continued  to  impose 
such  charges  within  their  charter  maxima  as  they  chose, 
subject  only  to  the  regulation  as  to  third-class  passenger 
service  contained  in  the  Cheap  Trains  Act.  In  1846  Par- 
liament created  a  Railway  Commission,  to  which  was  given 
the  supervisory  powers  over  railroads  previously  exercised 
by  the  Board  of  Trade.  The  authority  of  the  Commission 
was  so  limited  that  it  had  little  influence,  and  after  an  ex- 


378  RAILROAD  TRANSPORTATION 

istence  of  five  years  it  was  abolished  and  its  powers  once 
more  vested  in  the  Board  of  Trade. 

The  railway  business  of  the  United  Kingdom  developed 
rapidly  between  1840  and  1850,  and  as  traffic  and  travel 
expanded  in  volume  the  complaints  concerning  unreason- 
able and  discriminatory  rates  increased  in  number.  The 
railway  companies  refusing  to  redress  the  grievances  of 
shippers  and  travelers,  it  finally  became  necessary  for  the 
government  to  adopt  a  stronger  policy  with  respect  to  the 
regulation  of  railroad  charges.  In  1854  Parliament  en-j 
acted  a  measure  for  the  purpose  of  putting  an  end  to  dis-j 
crimination.  The  second  section  of  the  act  required  rail- 
way companies  to  afford  all  reasonable  facilities  for 
receiving,  forwarding  and  delivering  both  through  and 
local  traffic  and  prohibited  them  from  giving  any  "undue 
or  unreasonable  preference  or  advantage  to  or  in  favor 
of  any  particular  person  or  company,  or  any  particular 
description  of  traffic,  in  any  respect  whatsoever."  The 
law  contained  no  provision  as  to  the  determination  of 
reasonable  rates,  the  implication  being  that  the  charter 
maxima  afforded  a  sufficient  standard  of  reasonableness. 
The  enforcement  of  the  act  was  committed  to  the  Court 
of  Common  Pleas  at  Westminster,  the  Superior  Court  in 
Dublin  and  the  Court  of  Session  in  Scotland.  Anybody 
complaining  of  a  violation  of  the  law  could  bring  action 
for  its  enforcement,  and  the  Board  of  Trade  were  also 
authorized  to  have  proceedings  brought  for  the  enforcement 
of  the  act  by  certifying  violations  to  the  Attorney  General 
in  England  or  Ireland  or  to  the  Lord  Advocate  in  Scotland. 
The  courts  could  issue  a  writ  of  injunction  restraining  a  rail- 
way company  from  a  contravention  of  the  law,  and,  should 
the  order  be  disobeyed,  could  levy  a  fine  not  to  exceed  £200  a 
day  for  every  day  the  company  refused  to  observe  the  order. 
No  provision  was  made  for  an  award  of  damages  to  a  ship- 
per against  whom  discrimination  had  been  practiced. 


STATE  REGULATION  IN  ENGLAND   379 

This  law,  though  it  marked  a  great  advance  over  former 
measures,  had  but  little  practical  effect.  The  courts  showed 
little  desire  to  consider  anything  beyond  the  legal  points  of 
a  complaint  and  inasmuch  as  the  question  of  discrimination 
was  an  economic  rather  than  a  strictly  legal  issue,  the 
shippers  were  able  to  get  but  little  relief  from  court  pro- 
ceedings. Moreover,  the  process  of  securing  redress  from 
the  courts  was  usually  so  slow  and  expensive  that  complain- 
ants became  discouraged.  The  law  embodied  an  excellent 
principle  and  marked  a  new  departure  in  railway  regula- 
tion, but  because  of  the  lack  of  machinery  for  proper  en- 
forcement, it  was  of  little  practical  value  to  the  public. 

Finding  that  the  people  were  not  appealing  to  the  courts 
for  enforcement  of  the  Act  of  1854,  and  also  observing 
that  the  discriminating  practices  of  the  railway  companies 
continued  to  grow,  Parliament  in  1873  passed  a  law  intended 
to  supply  more  effective  machinery  for  rate  regulation.  A 
board  of  three  railway  commissioners  was  created,  it  being 
stipulated  that  one  of  the  members  should  be  a  lawyer  and 
another  should  be  a  man  of  practical  experience  in  the  rail- 
way business.  The  jurisdiction  of  all  cases  arising  from 
complaints  made  under  the  second  section  of  the  Act  of 
1854  was  transferred  to  the  commissioners,  and  they  were 
also  assigned  certain  other  powers  and  duties,  including 
powers  to  fix  "terminal  charges"  in  case  of  any  dispute 
which  might  arise  concerning  such  charges,  and  to  require 
railway  companies  to  keep  at  each  station  schedules  of 
charges  which  should  be  open  to  public  inspection.  The 
orders  of  the  commissioners  were  not  binding  but  were  to 
be  enforced  by  the  superior  courts.  Appeals  on  ques- 
tions of  law  could  be  taken  from  the  decisions  of  the 
commissioners  to  the  superior  courts.  The  act  establish- 
ing the  new  tribunal  was  to  continue  in  force  for  a  period 
of  five  years,  but  it  was  later  renewed  and  extended 
until  1888. 


380  RAILROAD  TRANSPORTATION 

The  success  of  the  new  system  of  regulation  was  but 
slight.  The  commissioners  could  make  findings  and  issue 
orders,  but  could  not  secure  compliance  without  resorting 
to  action  in  the  courts.  The  tribunal  had  neither  the  power 
nor  the  dignity  of  a  court,  and  the  railway  companies  gave 
it  scant  measure  of  respect.  They  did  not  attempt  to  present 
an  adequate  defense  against  complaints  brought  before  the 
commissioners,  preferring  to  wait  until  the  case  reached 
the  law  courts.  Here  they  not  only  presented  new  facts  for 
their  defense  but  often  successfully  challenged  the  jurisdic- 
tion of  the  commissioners.  Indeed  the  effect  of  the  act  of 
1873  seems  to  have  been  that  the  process  of  securing  re- 
dress for  violations  of  the  second  section  of  the  Act  of  1854 
became  even  longer,  more  wearisome,  and  more  expensive 
than  it  had  been  before,  and  as  a  result  shippers  ceased  to 
bring  actions  before  the  new  tribunal. 

In  1881  and  1882  a  Select  Committee  of  the  House  of 
Commons  made  an  elaborate  and  detailed  investigation  of 
railway  rates  and  charges  and  the  existing  methods  of  their 
regulation.  The  committee  summed  up  the  complaints  con- 
cerning the  railways  as  follows : 

1.  That  rates  in  excess  of  the  maximum  authorized  by 
the  special  acts  are  in  many  cases  exacted. 

2.  That  on  some  lines  of  railway  higher  rates  are  charged 
on  some  kinds  of  goods  as  compared  with  others,  although 
the  cost  to  the  company  of  performing  the  service  is  no 
greater  in  one  case  than  in  the  other. 

3.  That  in  many  cases  lower  rates  are  charged  for  goods 
imported  or  for  export  than  for  the  same  articles  produced 
or  for  consumption  in  this  country. 

4.  That  preferential  rates  are  granted  to  one  port  or 
town  as  against  another. 

5.  That  rates  are  now,  in  certain  instances,  much  higher 
than  they  were  many  years  ago,  and  that  excessive,  al- 
though not  illegal,  rates  prevent  the  development  of  traffic 


STATE  REGULATION  IN  ENGLAND       381 

to  the  prejudice  of  the  public  and  of  the  railways  them- 
selves. 

6.  That  the  difficulties  in  the  way  of  obtaining  redress  by 
private  individuals  against  railway  companies  for  over- 
charge or  illegal  preference  are  almost  insuperable. 

7.  That  in  consequence  of  the  multiplicity  of  private  acts, 
imperfect  classifications,  and  defective  rate  books,  it  is 
almost  impracticable  to  ascertain  the  particular  class  to 
which  an  article  belongs,  and  the  rates  which  the  railway 
company  will  charge  or  is  authorized  to  charge  for  its 
conveyance. 

The  committee  made  an  exhaustive  inquiry  into  all  these 
complaints  and  found  that  most  of  them  rested  on  a  basis 
of  fact.  In  particular  did  the  existing  scheme  of  classi- 
fication and  rates  appear  confusing,  it  being  necessary  in 
some  cases  to  consult  more  than  fifty  separate  acts  to  de- 
termine the  various  rates  a  company  was  authorized  to 
charge.  The  passenger  service  the  committee  found  was 
on  the  whole  satisfactory,  though  on  some  lines  there  seemed 
to  be  an  insufficient  provision  for  carrying  third-class  pas- 
sengers. Among  its  recommendations  the  committee  sug- 
gested that  a  uniform  classification  of  goods  be  adopted  for 
the  entire  railway  system,  and  that  the  Board  of  Railway 
Commissioners  be  made  a  permanent  court  of  record  and 
its  powers  be  extended. 

The  first  result  of  the  work  of  this  committee  was  the 
passage  of  the  Cheap  Trains  Act  of  1883  which  authorized 
the  Board  of  Trade  to  order  the  railways  to  give  more  fre- 
quent cheap  passenger  service  to  workmen.  In  1888  a 
new  Railway  and  Canal  Traffic  Act  was  passed,  providing 
for  a  complete  revision  of  the  entire  system  of  railway 
freight  rates  and  for  the  creation  of  adequate  machinery 
for  railway  regulation.  By  this  Act  the  Board  of  Rail- 
way Commissioners  created  by  the  Act  of  1873  was  super- 
seded  by   a   permanent    Railway   and    Canal    Commission. 


382  RAILROAD  TRANSPORTATION 

This  commission,  which  is  still  in  existence,  has  five  mem- 
bers, two  appointed  by  the  Crown  on  the  recommendation 
of  the  president  of  the  Board  of  Trade,  and  three  ex-officio 
members,  one  for  England,  one  for  Scotland  and  one  for 
Ireland.  Of  the  two  appointed  members  one  must  be  a 
man  of  practical  experience  in  railway  transportation.  The 
ex-officio  member  in  each  case  is  such  judge  of  the  Supe- 
rior Court  as  in  England  may  be  designated  by  the  Lord 
Chancellor  of  England,  in  Scotland  by  the  Lord  President 
of  the  Court  of  Sessions  and  in  Ireland  by  the  Lord  Chan- 
cellor of  Ireland.  When  the  commission  is  at  work  it  is 
composed  of  three  commissioners,  the  two  appointed  mem- 
bers and  the  ex-officio  member  of  England,  Ireland  or 
Scotland,  according  to  the  country  in  which  the  commission 
is  sitting.  In  event  of  the  inability  of  any  member  to  at- 
tend a  meeting  of  the  commission,  a  temporary  substitute 
may  be  named  by  the  authority  that  names  the  regular 
members.  The  ex-officio  member  presides  over  the  meet- 
ings of  the  commission  and  his  opinion  prevails  on  all 
questions  of  law  arising  in  any  case.  The  commission  is  a 
court  of  record  and  no  appeal  from  its  decisions  is  per- 
mitted upon  any  question  of  fact  or  upon  the  locus  standi 
of  a  complainant.  Its  orders  are  binding  unless  set  aside 
by  a  superior  court  of  appeal. 

The  commission  was  assigned  by  the  Act  of  1888  all  the 
duties  previously  exercised  by  the  Railway  Commissioners 
and  it  was  also  vested  with  jurisdiction  over  all  cases  involv- 
ing violation  of  special  acts  relating  to  facilities  and  charges. 
It  was  authorized  to  determine  the  legality  of  any  rate,  to 
order  railway  companies  to  provide  reasonable  facilities  for 
handling  traffic,  to  order  through  rates  on  the  application  of 
railroad  companies  or  shippers,  to  determine  the  reasonable- 
ness of  "group"  rates,  and  to  award  damages  to  complain- 
ants. No  damages  were  to  be  awarded,  however,  on  a 
charge  of  undue  preference,  if  the  rates  complained  of  had 


STATE  REGULATION  IN  ENGLAND   383 

been  published  in  the  rate  books  of  the  company  and  the 
complainant  had  not  given  written  notice  to  the  company 
that  the  rates  in  question  were  considered  unduly  dis- 
criminatory. 

The  act  prohibited  differential  rates  in  favor  of  or  against 
foreign  merchandise,  authorized  the  Railway  Commission 
and  the  courts  to  direct  "that  no  higher  charge  shall  be 
made  to  any  person  for  services  in  respect  of  merchandise 
carried  over  a  less  distance  than  is  made  to  any  other  person 
for  similar  services  in  respect  of  the  like  description  and 
quantity  of  merchandise  carried  over  a  greater  distance  on 
the  same  line  of  railway,"  and  stipulated  that  whenever 
unequal  charges  for  similar  services  should  be  shown  to 
exist,  the  burden  of  proving  that  the  lower  charge  was  not 
an  undue  preference  should  fall  upon  the  railway  company. 

A  new  feature  of  regulation  contained  in  the  Act  of 
1888,  copied  from  the  Massachusetts  Railroad  Commission 
law  of  that  time,  was  embodied  in  a  section  authorizing  the 
Board  of  Trade  to  act  as  a  committee  of  conciliation  in 
cases  where  persons  were  of  the  opinion  that  they  were  being 
charged  unreasonable  or  unfair  rates  by  the  railway  com- 
panies. If  upon  receiving  an  objection  to  a  rate  the  Board 
of  Trade  felt  there  was  reasonable  ground  for  complaint 
they  could  call  upon  the  railway  company  for  an  explana- 
tion "and  endeavor  to  settle  amicably  the  differences  be- 
tween the  complainant  and  the  railway  company."  The 
Board  of  Trade  could,  under  this  section,  consider  not  only 
complaints  concerning  discriminatory  rates  and  rates  which 
were  thought  to  be  in  excess  of  the  legal  maximum,  but  also 
complaints  concerning  rates  which,  though  they  might  be 
unreasonable,  were  not  technical  violations  of  the  law. 

In  addition  to  establishing  adequate  and  effective  means 
for  enforcing  the  law  against  discrimination  the  Act  of 
1888  paved  the  way  for  a  comprehensive  readjustment  of 
the  entire  system  of  freight  rates  on  British  railways.     All 


384.  RAILROAD  TRANSPORTATION 

the  railway  companies  were  directed  to  work  out,  in  col- 
laboration with  the  Board  of  Trade,  a  revised  classification 
of  merchandise  traffic  and  revised  schedules  of  maximum 
rates.  It  was  stipulated  that  public  hearings  should  be 
held  on  all  proposed  changes,  and  that  when  the  new  classi- 
fication and  schedules  were  finally  completed  they  should 
be  enacted  into  law.  After  numerous  hearings  and  investi- 
gations by  the  Board  of  Trade  and  by  a  joint  parliamentary 
committee  the  schedules  were  completed.  Bills  for  their 
confirmation  were  passed  in  1891  and  1892,  and  their  ef- 
fective date  set  for  January  i,  1893. 

The  new  laws  provided  for  a  great  change  in  classifica- 
tions and  rates.  A  new  and  uniform  classification  was 
introduced  for  the  entire  United  Kingdom ;  maximum  rates 
were  greatly  modified  and  fixed  on  a  new  basis ;  maximum 
charges  for  terminal  services  were  established ;  and  the  rail- 
way companies  were  required  to  afford  facilities  for  carry- 
ing perishable  goods  such  as  fish,  fruit,  dairy  products 
and  hothouse  vegetables,  either  by  passenger  train  or  by 
similar  service.  The  railway  companies  were  empowered 
to  make  reasonable  charges  for  such  services  as  collection 
and  delivery  of  traffic,  weighing,  supplying  siding  facilities, 
etc.,  and  were  authorized  to  make  payments  for  the  use 
of  shippers'  cars. 

Many  of  the  new  rates  put  into  effect  by  the  laws  of 
1891-1892  were  substantial  reductions  under  the  rates  pre- 
viously charged,  and  to  offset  the  losses  occasioned  by  the 
reductions,  the  railway  companies  raised  to  the  authorized 
maximum  virtually  all  rates  previously  in  force  which  had 
been  below  the  new  maxima.  A  storm  of  complaint  im- 
mediately arose  from  shippers,  and  to  meet  the  situation 
the  Railway  and  Canal  Traffic  Act  of  1894  was  passed, 
which  provided  that  if  a  railway  company  had  increased  or 
should  increase  directly  or  indirectly  any  rate  or  charge 
after  December  31,  1892,  and  a  complaint  was  made  that 


STATE  REGULATION  IN  ENGLAND       385 

the  increased  rate  was  unreasonable,  "it  shall  lie  within  the 
company  to  prove  that  the  increase  is  reasonable,  and  for 
that  purpose  it  is  not  sufficient  to  show  that  the  rate  or 
charge  is  within  the  limit  fixed  by  an  Act  of  Parliament." 
The  Railway  and  Canal  Commission  was  authorized  to 
hear  and  determine  any  complaint  with  respect  to  any  such 
increase,  but  not  until  after  the  complaint  had  been  laid 
before  the  Board  of  Trade  and  an  attempt  made  to  secure 
an  "amicable"  settlement  of  the  issue  under  the  terms  of 
the  conciliation  clause  of  the  Act  of  1888. 

The  law  of  1894  virtually  constituted  as  standards  of 
reasonableness  all  rates  in  effect  on  December  31,  1892, 
except  such  rates  as  were  reduced  by  the  rate  laws  of  1891 
and  1892,  and  gave  to  the  Railway  Commission  broader 
discretionary  powers  with  respect  to  rates  than  it  had  pre- 
viously possessed.  In  1913,  because  of  a  previous  general 
increase  in  the  wages  of  railway  employees,  an  act  was 
passed  which  provided  that  if  a  complaint  of  an  increase  of 
rates  was  made  under  the  Act  of  1894,  the  Railway  Com- 
mission should  permit  the  increase  if  the  railway  company 
could  show  that  there  had  been  a  rise  in  operating  ex- 
penses due  to  improving  the  condition  of  its  clerical  and 
labor  force,  that  the  proposed  increase  in  rates  was  not 
greater  than  actually  required  for  meeting  the  increased 
expense,  and  that  the  proportion  of  the  increase  allocated 
to  the  particular  traffic  about  which  the  complaint  was  made 
was  not  unreasonable. 

When  Great  Britain  entered  the  war  against  Germany 
in  August,  1914,  the  British  railways  automatically  passed 
under  the  control  of  the  Government  by  virtue  of  an  act 
passed  in  1871.  The  railway  companies  continued  to  oper- 
ate their  respective  lines,  but  they  were  subject  to  the  direc- 
tion of  a  Railway  Executive  Committee,  of  which  the 
nominal  head  was  the  President  of  the  Board  of  Trade. 
The   primary   consideration   in   the    railway   policy   of   the 


386  RAILROAD  TRANSPORTATION 

Government  was  to  secure  the  expeditious  movement  of 
troops  and  supplies  destined  for  military  operations  in 
France  and  elsewhere,  and  the  movement  of  raw  materials, 
supplies  and  equipment  used  in  conducting  British  war 
industries.  All  the  railway  facilities  were  pooled  into  one 
great  unified  system,  the  solicitation  of  traffic  was  discon- 
tinued, many  varieties  of  non-essential  service  were  dis- 
pensed with,  and  every  effort  was  made  to  keep  ordinary 
commercial  traffic,  both  freight  and  passenger,  at  a  mini- 
mum. The  results  of  unified  operation,  from  a  military 
standpoint,  were  highly  gratifying.  The  early  British  ex- 
peditionary forces  were  taken  to  Southampton  and  de- 
spatched to  the  continent  in  an  amazingly  short  time,  and 
throughout  the  conflict  the  railways  functioned  in  a  highly 
admirable  manner. 

The  law  of  1871  provided  that  the  railway  companies 
should  be  adequately  compensated  for  the  use  of  their 
property  if  at  any  time  the  Government  should  assume  con- 
trol of  the  railroads,  but  it  did  not  state  precisely  how  the 
rate  of  compensation  should  be  determined.  Shortly  after 
the  war  began  the  Government  entered  into  definite  ar- 
rangements with  the  various  railroad  corporations.  These 
agreements  provided  that  the  companies  should  operate  the 
railroads  on  behalf  of  the  Government,  making  no  charge 
for  the  transportation  of  Government  traffic.  The  Govern- 
ment guaranteed  to  the  companies  a  net  income  equal  to 
that  received  by  them  in  191 3.  It  was  subsequently  agreed 
that  the  Government  should  reimburse  the  companies  for 
deferred  maintenance  charges,  to  an  amount  equal  to  the 
difference  between  what  the  companies  expended  and  what 
they  would  have  paid  out  under  normal  conditions.  It  was 
also  agreed  that  at  the  end  of  Government  control  the 
companies  should  receive  their  property  with  revenue  earn- 
ing capacity  unimpaired. 

The  increasing  cost  of  living  in  Great  Britain  made  it 


STATE  REGULATION  IN  ENGLAND       387 

necessary  to  increase  the  wages  of  the  railway  workers.  In 
191 5  all  employees  were  given  a  small  weekly  bonus,  the 
cost  of  which  was  borne  partly  by  the  railroad  companies 
and  partly  by  the  Government.  A  second  bonus  was 
granted  in  1916  and  a  third  in  April,  1917. 

Up  to  1917  it  was  unnecessary  for  the  Government  to 
subsidize  the  railway  companies.  The  roads  earned  their 
guaranteed  income  without  any  increase  in  rates  or  fares. 
Taking  into  consideration  the  fact  that  all  Government 
traffic  was  carried  free,  the  Government  was  obtaining  a 
handsome  income  from  the  railroads.  The  costs  of  labor 
and  supplies  increased  so  rapidly,  however,  that  early  in 
191 7  the  Government  ordered  an  increase  of  50  per  cent  in 
all  passenger  fares.  This  increase  failed  to  make  up  for 
the  added  costs  of  operation,  and  by  1919  the  railroads  were 
showing  a  large  operating  deficit,  which  the  Government 
was  required  to  make  good. 

Upon  the  termination  of  hostilities  in  November,  1918, 
the  British  Government  was  confronted  with  the  problem 
of  restoring  the  railroads  to  their  owners.  At  one  time  it 
was  announced  that  the  railroads  would  be  nationalized, 
but  this  plan  was  later  abandoned  and  steps  taken  to  pro- 
vide for  the  resumption  of  private  management.  The  first 
step  in  this  direction  was  the  enactment  of  the  Ministry  of 
Transport  Act  in  August,  1919. 

This  law  provided  for  the  appointment  of  a  Minister 
of  Transport  to  whom  was  entrusted  virtually  all  the  powers 
which  the  Board  of  Trade  and  other  executive  departments 
had  exercised  with  respect  to  the  railroads,  tramways  and 
other  facilities  for  inland  rail  and  water  transportation. 
It  was  proposed  that  this  Minister  should  assume  charge 
of  the  railroad  affairs  of  the  Government  for  a  period  of 
two  years,  during  which  he  should  work  out  a  railway  pol- 
icy for  the  future.  He  was  given  authority  to  establish 
rates,  make  agreements  with  regard  to  wages  and  working 


388  RAILROAD  TRANSPORTATION 

conditions  of  railway  employees,  and  to  exercise  general 
supervision  over  the  railroads  controlled  by  the  Govern- 
ment. The  law  created  an  Advisory  Committee  on  Rates, 
consisting  of  representatives  of  railroad,  commercial  and 
labor  interests.  The  Minister  of  Transport  was  directed 
to  consult  with  and  obtain  the  advice  of  this  Committee 
before  making  any  revision  in  the  rates,  fares  and  other 
charges  of  the  railroads.  It  was  provided  that  any  rates 
which  the  Minister  of  Transport  might  establish  should  be 
considered  "reasonable"  and  notwithstanding  the  maximum 
rate  laws  of  former  years  might  be  charged  during  the 
period  of  Government  control  and  for  18  months  there- 
after, or  until  new  maximum  charges  should  be  established 
by  Parliament.  The  law  did  not,  however,  permit  the 
exaction  of  discriminatory  rates,  it  being  expressly  stipu- 
lated that  the  Railway  and  Canal  Commission  should  con- 
tinue to  exercise  its  duties  of  correcting  discriminations  in 
railroad  rates  and  services. 

Shortly  after  assuming  office  the  Minister  of  Transport 
was  confronted  with  a  general  railroad  strike.  It  was  nec- 
essary to  raise  wages  again  to  enable  the  workers  to  meet 
the  high  cost  of  living.  The  higher  labor  costs  were  re- 
flected in  an  enlarged  operating  deficit  of  the  railroads.  In 
January,  1920,  the  freight  rates  on  British  railroads  were 
increased  50  per  cent.  The  increased  receipts  were  not 
sufficient  to  offset  the  greater  expenses,  and  in  August  pas- 
senger fares  were  increased  16^  per  cent  and  freight  rates 
48  per  cent,  bringing  fares  to  a  level  of  75  per  cent  higher 
than  before  the  war  and  freight  rates  112  per  cent  higher. 

Despite  these  large  increases  in  rates  and  fares  the  rail- 
roads failed  to  earn  a  net  income  equal  to  that  of  191 3. 
The  high  costs  of  operation  were  partly  responsible  for 
the  failure  of  the  carriers  to  obtain  an  adequate  return, 
though  an  important  contributing  cause  was  a  business 
depression  which  began  in  Great  Britain  in  1920  at  about 


STATE  REGULATION  IN  ENGLAND   389 

the  same  time  that  the  business  reaction  began  in  America. 
Traffic  declined  in  volume,  and  the  gross  income  of  the  rail- 
roads receded,  notwithstanding  the  higher  rates  and  fares. 
In   accordance   with   the   law   of    1919,   the    Minister   of 
Transport   worked  out   a  program  of   railroad   legislation. 
This  program  was  enacted  into  law  by  Parliament,  and  on 
August    15,    1921,   the   British   railways    were   returned   to 
their  owners.     The   Railways  Act   of    1921,   when  finally 
carried   out,   will   revolutionize   the   conditions    of    railway 
transportation  in  England  and  Scotland.     First  of  all  the 
law  directs  that  all  the  leading  railroads  of  Great  Britain 
and  nearly  all  the  smaller  lines  be  consolidated  into  four 
large   systems,   each   system   having   a   monopoly    within   a 
particular  region.     The  railroad  companies  are  required  to 
prepare  the  detailed  plans  of  consolidation,  but  the  plans 
must  be  approved,  before  final  action,  by  an  "Amalgamation 
Tribunal"  which  the  law  creates.    There  will  also  be  a  rad- 
ical change  in  the  system  of  railroad  rates.    The  Act  creates 
a  "Rates  Tribunal,"  consisting  of  representatives  of  ship- 
pers, railroad  companies  and  labor,  which  is  directed  to  de- 
vise a  new  freight  classification,  and  in  cooperation  with  the 
railroad  companies  establish  scales  of  "standard  charges," 
such  as  will  permit  the  carriers  to  earn  a  net  income  equiva- 
lent to  the  net  income  of  191 3,  with  a  five  percent  allowance 
on  subsequent  capital  expenditures.     The   Rates  Tribunal 
has  power  to  make  changes  in  the  standard  charges,  and  to 
permit  the  establishment  of  "exceptional  rates"  lower  than 
the  standard  charges.    The  rate  structure  will  thus  be  much 
more  flexible  than  under  the  old  plan  of  regulation.     The 
Railway  and  Canal  Commission  retains  its  jurisdiction  over 
cases  involving  discrimination.     A  system  of  councils  and 
arbitration  boards  is  established  to  deal  with  labor  disputes. 
It  is  expected  that  the  entire  work  of  reorganization  will  be 
completed  by  July  1,  1923. 

In  contrast  with  the  policy  of  private  ownership   of   rail- 


390  RAILROAD  TRANSPORTATION 

roads  as  exemplified  by  the  United  Kingdom  is  the  plan  of 
government  ownership  as  typified  by  the  states  of  Ger- 
many. Though  there  are  several  countries  in  which  the 
railroads  are  owned  by  the  state,  Germany  furnishes  the 
most  prominent  and  successful  example  of  government 
ownership  and  operation.  Before  the  World  War  each 
state  of  the  empire  owned  most  of  the  railroads  within  its 
borders.  The  Imperial  Government  was  also  a  railroad 
owner,  having  acquired  the  lines  in  Alsace-Lorraine  shortly 
after  that  section  was  taken  from  France  in  1871.  How- 
ever, the  lines  owned  by  the  empire  were  operated  by 
Prussia. 

At  the  time  of  the  introduction  of  the  steam  railroad  the 
region  of  Europe  now  included  in  Germany  was  in  a  very 
backward  state  of  industrial  and  commercial  development, 
and  the  German  people,  divided  into  numerous  states  among 
which  there  was  virtually  no  bond  of  union,  were  living 
under  political  conditions  which  discouraged  private  invest- 
ment. These  facts  go  far  to  explain  the  difference  between 
the  railway  policy  of  Germany  and  that  of  the  United 
Kingdom,  where,  at  the  time  steam  railway  transportation 
began,  substantial  industrial  development  had  taken  place 
and  political  conditions  were  more  settled.  Had  the  indus- 
tries of  Germany  been  as  fully  developed  as  those  of  Eng- 
land in  1830,  and  had  the  political  unification  of  the  coun- 
try been  accomplished,  it  cannot  be  doubted  that  sufficient 
private  capital  would  have  been  available  to  supply  the 
country  with  needed  railroads  and  it  would  not  have  been 
necessary  for  the  governments  of  various  states  either  to 
build  roads  or  to  aid  private  investors  in  undertaking  the 
task.  Moreover,  it  is  unlikely  that  any  state  would  have 
had  military  reasons  for  engaging  in  railway  construction 
or  for  purchasing  lines  built  by  private  capital. 

Previous  to  the  establishment  of  the  German  Empire  in 
1 871,  governmental  control  and  regulation  of  German  rail- 


STATE  REGULATION  IN  GERMANY      :i!)l 

ways  was  exercised  solely  by  the  various  state  governments. 
Though  the  Imperial  Government  received  in  1871  certain 
rights  with  respect  to  the  direction  of  the  railway  policy,  it 
did  not  (before  the  war  of  1914)  exercise  its  authority  to 
any  great  extent,  and  the  important  factor  in  government 
control  of  the  railroads  remained,  as  before  1871,  the  poli- 
cies followed  by  the  various  states.  The  policy  of  Prussia, 
the  largest  and  strongest  state,  was  typical,  and  the  history 
of  railway  development  in  that  kingdom  was,  on  the  whole, 
closely  paralleled  in  the  other  parts  of  the  empire. 

In  general  the  early  railway  policy  of  the  Prussian  Gov- 
ernment was  to  aid  private  enterprise  in  the  building  of 
roads  and  to  subject  the  roads  thus  constructed  to  detailed 
regulation.  This  practice  was  soon  supplemented  by  a  pol- 
icy of  state  construction  and  operation  of  lines  in  various 
portions  of  the  kingdom.  The  next  step  was  the  gradual 
acquisition  of  privately  owned  lines  by  the  Government,  a 
movement  which  eventually  led  to  a  nearly  complete  nation- 
alization of  the  railway  system  of  Prussia. 

The  first  general  Prussian  law  regulating  railway  affairs, 
enacted  in  1838,  was  a  detailed  and  comprehensive  measure 
providing  for  the  thorough  control  of  the  railroads  by  the 
state.  Among  the  minor  provisions  of  the  law  was  one 
stipulating  that  the  companies  building  railroads  in  Prussia 
were  to  be  guaranteed  for  30  years  against  the  construction 
of  competing  lines.  This  guarantee  of  protection  against 
competition  did  not,  however,  prove  a  sufficient  inducement 
to  private  capital,  and  in  1842  a  law  was  passed  providing 
for  state  aid  in  the  form  of  interest  guaranties,  the  state 
assuring  to  those  investing  capital  in  railways  a  minimum 
rate  of  return  on  their  investments.  In  guaranteeing  the 
interest  return  on  invested  capital,  the  Government  re- 
served the  right  of  taking  the  roads  under  its  own  manage- 
ment, should  the  private  companies  prove  to  be  unable  so  to 
manage  their  lines  as  to  secure  net  earnings  large  enough 


392  RAILROAD  TRANSPORTATION 

to  pay  the  minimum  interest  guaranteed  by  the  state.  The 
encouragement  offered  by  the  Government  was  sufficient 
to  stimulate  private  investment,  and  between  1843  an(^  l&47 
a  large  number  of  new  railway  lines  were  started.  During 
the  business  depression  following  1848  several  of  these 
new  companies  were  unable  to  earn  enough  to  meet  inter- 
est payments  and  their  lines  were  taken  over  and  man- 
aged by  the  Government.  The  history  of  railway  legisla- 
tion in  other  countries  as  well  as  in  Prussia  shows  that  state 
subsidies  and  interest  guaranties  have  had  not  a  little  to  do 
in  bringing  about  the  nationalization  of  railroads. 

The  decade  following  1850  was  a  period  of  active  railway 
construction  in  Prussia,  a  large  number  of  new  lines  being 
built  by  private  capital  and  several  lines  by  the  state.  The 
government  lines  constructed  during  this  period  were  built 
chiefly  for  purposes  of  military  strategy.  Under  the  influ- 
ence of  Bismarck  a  political  program  was  being  mapped 
out  for  Prussia,  the  two  cardinal  features  of  which  were 
the  deposition  of  Austria  from  the  place  of  dominating  in- 
fluence in  German  politics  and  the  unification  of  the  Ger- 
man states  into  a  compact  empire  in  which  the  Kingdom  of 
Prussia  was  to  be  the  most  powerful  factor.  Such  a  pro- 
gram could  be  accomplished  only  by  force  of  arms,  and 
the  efforts  of  Bismarck  and  the  other  statesmen  who 
wrought  so  successfully  for  the  unification  of  Germany 
were  directed  toward  strengthening  the  military  power  of 
the  German  states,  and  of  Prussia  in  particular.  These 
statesmen  saw  that  the  railway  system  of  Prussia  and  the 
other  German  states  might  be  made  to  assist  greatly  in  the 
military  aims  they  had  in  view,  and  as  a  result  the  railway 
policy  of  Prussia  for  more  than  20  years  was  dictated  largely 
by  the  military  purposes  of  Bismarck  and  his  supporters. 

As  early  as  1848  Prussia  began  the  construction  of  a 
railroad  leading  from  Berlin  to  the  Russian  frontier,  and 
during  the  next  two  decades  the  Government  added  to  its 


STATE  REGULATION  IN  GERMANY       393 

railway  net  such  lines  as  the  state's  limited  resources  made 
it  possible  to  secure.  Some  lines  were  built,  and  from  time 
to  time  the  stocks  of  private  railroad  companies  were  pur- 
chased by  the  state.  From  1862  to  1870  Bismarck  gave  less 
attention  than  he  had  given  during  the  preceding  decade 
to  the  development  of  the  state  railway  system.  The  brief 
war  with  Austria  in  1866,  by  which  the  first  part  of  hh 
political  program  was  accomplished,  and  the  preparation 
for  the  struggle  with  France,  which  was  to  pave  the  way 
for  the  formation  of  the  German  Empire,  engrossed  all 
his  energies  and  attention.  There  was  no  pronounced 
change  in  his  railway  policy  however ;  the  lines  already 
acquired  by  the  state  were  retained  and  managed  in  much 
the  same  way  as  the  private  corporations  managed  their 
lines.  Though  acquired  primarily  for  military  purposes 
the  roads  were  operated  with  a  view  to  securing  as  favor- 
able fiscal  results  as  possible.  Not  only  did  Bismarck  use 
the  state  roads  as  a  source  of  revenue,  but  occasionally 
when  he  found  it  impossible  to  secure  appropriations  from 
the  Prussian  Diet  sufficient  for  his  military  program  he 
resorted  to  the  sale  of  favorable  railway  concessions  to 
private  corporations  as  a  means  of  obtaining  money  with 
which  his  plans  could  be  carried  out. 

After  the  close  of  the  Franco-Prussian  War  in  1871  and 
the  formation  of  the  German  Empire,  Bismarck  endeavored 
to  bring  about  the  purchase  by  the  empire  of  all  the  rail- 
roads within  its  borders,  including  those  belonging  to  the 
states  and  those  owned  by  private  companies.  He  desired 
to  strengthen  the  newly  founded  Imperial  Government,  and, 
by  making  it  much  stronger  than  any  of  the  state  govern- 
ments, insure  the  permanency  of  German  political  unity. 
This,  however,  was  not  the  reason  advanced  for  the  control 
of  railways  by  imperial  authority.  The  military  advantage 
of  such  control,  the  elimination  of  rate  discriminations,  and 
the  ability  of  the  empire  to  use  the  railways  for  the  promo- 


394-  RAILROAD  TRANSPORTATION 

tion  of  the  industrial  and  social  welfare  of  the  German 
people  were  the  arguments  upon  which  chief  stress  was 
laid.  The  beginnings  of  an  imperial  system  were  made  in 
the  acquisition  of  the  railways  of  Alsace-Lorraine  by  the 
empire,  but  the  plan  went  no  farther  because  of  the  jeal- 
ousies of  the  states  which  were  smaller  and  less  powerful 
than  Prussia. 

The  constitution  of  the  new  empire,  adopted  in  1871, 
provided,  however,  that  the  Imperial  Government  should 
have  certain  rights  of  control  and  legislation  over  the  rail- 
ways. It  could  build  railways  in  any  state,  establish  regula- 
tions for  the  purpose  of  securing  uniformity  of  operation, 
regulate  rates,  require  rates  on  provisions  to  be  reduced  in 
times  of  famine,  and  use  all  railways  for  military  purposes. 
In  practice  the  Imperial  Government,  previous  to  the  be- 
ginning of  the  war  in  1914,  exercised  but  little  of  its  power 
over  railroads.  An  Imperial  Railway  Office  (Reichs-Eisen- 
bahnamt)  was  established  at  Berlin,  but  it  possessed  but 
little  administrative  control,  because  of  the  lack  of  requisite 
legislation.  When  the  war  commenced  the  railways  of  the 
empire  were  placed  under  the  control  of  the  central  gov- 
ernment. Albert  Ballin,  the  Director  General  of  the  Ham- 
burg-American Packet  Company,  being  chosen  to  direct 
the  management  of  the  system.  In  1917  the  German  Em- 
peror issued  a  proclamation  placing  all  German  railways 
directly  under  the  control  of  the  military  organization  of 
the  Empire. 

Though  unable  to  bring  about  the  establishment  of  an 
imperial  railway  system  Bismarck  succeeded  in  1878-1879 
in  inducing  the  Prussian  Diet  to  embark  upon  a  scheme 
of  acquisition  of  private  railway  lines  by  the  Government, 
it  being  planned  to  buy  up  not  only  the  lines  lying  within 
the  limits  of  Prussia  but  also  several  roads  lying  ou'side 
the  kingdom,  especially  the  leading  private  lines  in  north 
Germany.    The  Government  did  not  at  once  take  possession 


STATE  REGULATION  IN  GERMANY      395 

of  all  the  lines,  but  purchased  one  system  after  another  as 
satisfactory  arrangements  could  be  made  with  the  corpora- 
tions. But  little  difficulty  was  encountered  in  securing  pos- 
session of  the  private  lines.  By  offering  the  companies  a 
liberal  sum  for  their  properties  and  by  exchanging  Govern- 
ment bonds  for  the  securities  of  the  companies,  the  state 
was  able  to  purchase  the  lines  without  serious  opposition 
on  the  part  of  their  former  owners.  In  no  case  was  it 
necessary  to  resort  to  expropriation. 

When  the  policy  of  state  purchase  was  inaugurated  in 
Prussia,  the  Government  owned  more  miles  of  road  than 
any  single  corporation  within  the  state.  In  April,  1880,  the 
state  possessed  3,760  miles  of  road.  During  the  next  few 
years  the  state  purchases  were  made  with  considerable 
rapidity,  so  that  in  April,  1886,  the  Government  was  man- 
aging 13,000  miles  of  lines.  In  1914  the  Government  sys- 
tem included  24,854  miles  of  line,  of  which  22,146  miles 
were  within  the  kingdom  of  Prussia.  Of  the  lines  in  the 
other  states  of  the  empire  which  were  operated  by  the 
Prussian  Government  the  most  important  were  in  Hesse, 
Brunswick,  Saxe-Weimar,  Saxe-Meiningen,  Saxe-Coburg- 
Gotha  and  Anhalt.  The  entire  state  railway  net  of  Hesse 
was  in  1896-97  incorporated  with  that  of  Prussia;  the  lines 
in  the  other  States  represented  purchases  made  from  time 
to  time  by  the  Prussian  Government,  for  the  purpose  of 
unifying  and  consolidating  its  railway  system. 

Not  all  railroads  in  Prussia  were  owned  and  operated  by 
the  Government.  In  191 3  there  were  about  1,800  miles  of 
line  in  the  hands  of  private  corporations.  These  private 
roads  consisted  of  relatively  unimportant  lines  and  were 
operated  by  their  owners  in  accordance  with  detailed  regu- 
lations laid  down  by  the  state.  They  were  in  no  sense  com- 
petitors with  the  state  system. 

The  management  of  the  Prussian  railways  offered  a  good 
example  of  the  traditional  skill  of  the  Germans  for  organ- 


396  RAILROAD  TRANSPORTATION 

ization.  At  the  head  of  the  Prussian  system  was  the  Min- 
ister of  Public  Works,  appointed  by  the  king.  The  railway 
department  of  the  ministry  (Eisenbahnabteilung)  was  un- 
der the  supervision  of  an  under-secretary,  who  was  assisted 
by  several  "ministerial  directors"  (Ministerialdirektoren), 
councilors  (Rate),  and  assistants.  The  staff  of  this  de- 
partment exercised  general  administrative  powers  over  the 
whole  railway  system.  It  was  divided  into  four  sections, 
dealing  respectively  with  management,  construction,  traffic 
and  finance.  These  staff  officials  had  but  little  to  do  with 
the  operation  of  the  railroads,  confining  their  activities  to 
determining  the  general  policy  to  be  followed  in  the  man- 
agement and  extension  of  the  railway  system. 

The  actual  operation  of  the  railways,  the  business  of 
fixing  rates  and  fares,  and  of  developing  traffic,  was  in- 
trusted to  twenty-one  Royal  Railway  Directories  (Konig- 
liche  Eisenbahndirektionen),  each  having  charge  of  the 
railways  in  a  particular  section  of  the  country.  Each  direc- 
tory, consisting  of  several  administrative  officials,  was 
headed  by  a  president,  whose  position  was  roughly  analo- 
gous to  that  of  a  president  of  a  railway  system  in  the  United 
States,  the  chief  difference  being  that  the  president  of  the 
directory  had  a  closer  relation  to  the  actual  details  of  rail- 
way administration  and  operation  and  had  less  to  do  with 
questions  relating  to  finance  and  other  matters  of  general 
railway  policy.  The  president  of  the  directory  not  only 
managed  the  state  railways  but  was  also  the  official  rep- 
resentative of  the  Government  for  the  regulation  of  the 
private  railways  within  his  district. 

The  operating  force  of  a  directory  was  organized  on  the 
departmental  plan,  with  four  main  divisions  of  the  work: 
operation  (Betrieb),  traffic  (Verkehr),  technical  matters 
(Maschinen),  and  shops  (Werkstatten).  The  work  in  each 
of  these  branches  was  subdivided  territorially,  a  single 
"office"   (Amt)   consisting  of  a  superintendent  or  manager 


STATE  REGULATION  IN  GERMANY       397 

and  his  subordinates  having  charge  of  a  particular  branch 
of  the  work  on  an  assigned  portion  of  track,  corresponding 
roughly  to  a  "division"  in  this  country.  Because  the  work 
of  operating  the  trains  was  the  heaviest  service  there  were 
more  operating  "offices"  and  divisions  than  traffic  or  other 
"offices"  and  divisions.  For  instance,  in  1913  there  were 
on  all  the  state  lines  of  Prussia  279  operating  "offices"  (Be- 
triebsamter)  each  having  an  average  of  about  150  kilo- 
meters of  track,  101  technical  "offices"  (Maschinenamter), 
125  shops  "offices"  (Werkstattenamter),  and  only  93  traf- 
fic "offices"   (Verkehrsamter). 

The  duty  of  making  rates  on  the  Prussian  railways  was 
performed  by  the  railway  directories,  under  the  control 
and  direction  of  the  Department  of  Public  Works.  Closely 
associated  with  the  rate  making  officials,  and  provided 
for  by  law,  were  certain  Advisory  Councils,  which  repre- 
sented the  shipping  interests  of  the  country.  There  were 
ten  of  these  advisory  bodies,  nine  Circuit  Councils,  which 
consulted  with  the  officers  of  the  directories,  and  a  National 
Council,  which  advised  the  officers  of  the  Department  of 
Public  Works.  The  councils  established  close  relations 
between  the  shipping  interests  of  the  country  and  the  rail- 
way officers,  and  endeavored  to  counteract  the  tendency 
toward  inelasticity  of  rates  which  is  likely  to  be  present 
when  railroads  are  owned  and  managed  by  the  Govern- 
ment. They  tried  to  prevent  arbitrary  action  by  the  rail- 
way managers  and  secured  the  consideration  of  the  eco- 
nomic interests  of  the  entire  country  in  all  questions  affect- 
ing the  general  rate  policy. 

In  addition  to  the  administrative  and  advisory  bodies 
which  exercised  control  over  the  Prussian  railway  system 
only,  there  were  other  bodies  which  had  an  important  part 
in  determining  regulations  respecting  rates  and  services  of 
the  German  railways.  A  voluntary  advisory  organization, 
the  Conference  of  German  Railways,  composed  of  mem- 


398  RAILROAD  TRANSPORTATION 

bers  representing  all  the  German  states,  considered  ques- 
tions relating  to  traffic  which  passed  from  one  state  to  an- 
other within  the  empire.  The  Society  of  German  Railway 
Managements  made  arrangements  with  regard  to  interna- 
tional railway  traffic  of  Germany  and  the  adjacent  coun- 
tries, including  Austria-Hungary,  Holland,  Belgium,  Rou- 
mania  and  Russian  Poland.  The  latter  organization  was 
concerned  chiefly  with  questions  of  uniformity  of  equip- 
ment, customs  regulations,  and  shipping  documents. 

The  history  of  railway  development  in  the  other  states 
of  the  German  Empire  was  similar  to  that  in  Prussia. 
Early  lines  were  either  constructed  by  the  government  or 
built  by  private  capitalists  who  received  from  the  state  a 
guaranty  of  the  interest  on  their  investment.  When  Bis- 
marck suggested  his  plan  of  the  purchase  of  all  railways 
by  the  Imperial  Government,  many  of  the  smaller  states, 
afraid  that  such  a  course  would  be  carried  out  with  respect 
to  privately  owned  railroads,  made  haste  to  secure  posses- 
sion of  the  railways  within  their  borders,  and  the  later  action 
of  the  Prussian  Government  in  purchasing  lines  not  only 
within  the  boundaries  of  Prussia  but  also  without  the  king- 
dom furnished  an  additional  incentive  to  railway  nation- 
alization in  the  smaller  states.  The  result  was  that  virtually 
all  of  the  private  railways  in  the  German  states  passed  un- 
der the  control  of  the  various  state  governments.  The  sys- 
tems of  administration  of  railways  in  the  smaller  states 
were  copied  to  a  large  extent  from  the  system  employed  by 
the  Prussian  Government. 

The  results  of  the  nationalization  of  railways  in  Prussia 
were  in  the  main  satisfactory.  From  a  financial  standpoint 
in  particular,  government  operation  proved  highly  suc- 
cessful. According  to  a  law  passed  in  1882,  the  first  charge 
on  the  net  receipts  of  the  state  railways  was  the  payment 
of  the  interest  on  the  debt  incurred  in  the  purchase  of  the 
roads.     The  railway  management  was  also  required  to  pay 


STATE  REGULATION  IN  GERMANY       399 

off  at  least  three-fourths  of  one  per  cent  of  the  total  debt 
each  year,  provided,  of  course,  the  net  profits  were  large 
enough  to  enable  such  payments  to  be  made. 

The  state  succeeded  in  getting  net  receipts  ranging  from 
5  to  7.5  per  cent  of  the  capital  investment,  from  the  opera- 
tion of  the  railroads.  During  the  period  from  1882  to  1900 
the  operating  ratio  reached  64  per  cent  only  once  and  in 
the  majority  of  the  years  it  was  less  than  60  per  cent. 
From  1900  to  1914  expenses  arose  somewhat  in  proportion 
to  receipts  and  the  operating  ratio  averaged  about  65  per 
cent  annually,  exceeding  70  per  cent  in  only  one  year 
(1908),  when  business  was  unusually  dull.  From  1882  to 
1900  the  average  annual  net  operating  income  amounted 
to  6.4  per  cent  of  the  capital  invested  in  the  railways,  and 
from  1900  to  1914  was  6.6  per  cent.  The  year  of  greatest 
profits  was  1905,  when  the  return  was  7.52  per  cent;  in 
1908  it  was  only  5.22  per  cent,  the  lowest  it  had  fallen  since 
1891.  From  these  net  earnings  the  state  paid  interest  and 
redemption  charges  on  the  railway  debt  amounting  to  $2,- 
000,000,000,  expended  out  of  earnings  $500,000,000  for 
improvements  and  extensions,  and  turned  into  the  general 
revenues  about  $1,000,000,000  to  meet  the  ordinary  ex- 
penses of  the  other  departments  of  the  Government.  In 
part  the  financial  success  of  the  Prussian  railways  was 
due  to  economical  management  but  in  part  also  to  the  favor- 
able topographical  conditions  which  tended  to  keep  down 
costs  of  construction  and  operation.  In  the  states  of  south- 
ern Germany,  where  the  land  is  more  rugged  in  character, 
the  financial  returns  on  the  government  owned  railroads 
were  much  less  favorable. 

While  state  ownership  in  Prussia  was  successful  from 
a  financial  standpoint  it  cannot  be  said  that  the  railways 
were  developed  to  serve  the  economic  interests  of  the  coun- 
try to  the  extent  that  they  have  been  in  most  countries 
where  private  management  has  prevailed.     The  passenger 


400  RAILROAD  TRANSPORTATION 

traffic  was  adequately  provided  for  at  rates  which  are 
lower  than  the  rates  in  other  countries  in  Western  Europe 
and  in  the  United  States,  but  the  freight  service  as  regards 
both  rates  and  facilities  was  inferior.  The  emphasis  placed 
upon  the  development  of  facilities  for  passenger  transpor- 
tation was  due  in  a  large  measure  to  the  Prussian  military 
policy.  The  rapid  mobilization  of  troops  in  August,  1914, 
showed  how  effectively  the  Prussian  Government  had 
planned  its  railway  system  to  meet  the  contingencies  of  a 
European  war. 

Throughout  the  war  the  German  railways,  all  under  the 
control  of  the  imperial  government,  were  administered 
strictly  with  reference  to  military  activities.  During  the 
first  three  years  of  the  war  freight  rates  were  increased 
but  little  and  in  fact  some  rates  were  reduced  to  facilitate 
the  operation  of  certain  industries  and  to  keep  down  the 
price  of  food.  On  the  other  hand,  passenger  fares  were 
advanced  sharply  almost  as  soon  as  hostilities  began,  to 
discourage  travel  and  thereby  release  equipment  for  mili- 
tary transport  service.  By  191 7  the  inflation  of  the  currency 
and  the  rise  of  wages  and  prices  made  it  necessary  to  ad- 
vance all  railroad  charges.  One  increase  followed  another, 
both  before  and  after  the  extinction  of  the  empire,  until 
in  1920,  freight  rates  were  600  per  cent  higher  and  passen- 
ger fares  670  per  cent  higher  than  they  were  in  1914 

The  crushing  defeat  of  Germany  in  191 8  brought  about 
a  complete  reorganization  of  the  government,  the  empire 
being  succeeded  by  a  republican  form  of  government.  One 
of  the  most  interesting  developments  of  the  economic  reor- 
ganization of  Germany  has  been  that  the  railroads,  instead 
of  reverting  to  the  individual  states,  have  been  combined 
into  a  single  national  system.  The  German  Constitution, 
adopted  by  the  National  Assembly  at  Weimar  in  July,  1919, 
provided  that  the  national  government  should,  not  later 
than  April  1,   1920,  take  over  all  state  railroads  serving 


STATE  REGULATION  IN  GERMANY       401 

general  transportation  needs  and  eventually  such  privately 
owned  railways  as  the  Government  might  deem  it  advisable 
to  acquire.  State-owned  street  railways  and  steam  rail- 
roads of  minor  importance  were  to  be  left  in  possession  of 
the  states.  All  railroads  not  taken  over  by  the  Federal 
Government  were  to  be  managed  and  operated  in  conform- 
ity with  rules  and  principles  which  the  Government  should 
prescribe.  The  constitution  stipulated  that  the  railways 
should  be  administered  as  an  independent  economic  under- 
taking, which  should  pay  its  own  expenses,  including  inter- 
est, and  set  aside  a  sinking  fund  to  extinguish  the  debt 
incurred  in  the  acquisition  of  the  lines. 

The  state  roads  were  duly  nationalized  April  I,  1920, 
and  on  May  4  an  act  was  passed  providing  for  the  payment 
of  the  individual  states  for  their  railroads,  and  creating  an 
organization  to  direct  the  operation  of  the  national  system. 
The  law  created  a  National  Ministry  of  Transport,  the  head 
of  which  is  a  member  of  the  President's  cabinet.  This 
minister  was  given  general  supervision  of  the  railway  serv- 
ice, with  power  to  regulate  the  general  policy  of  railroad 
transportation,  direct  the  operation  of  the  roads,  control 
their  finances  and  establish  rates.  The  law  provided  that 
during  the  first  year  of  control  by  the  Federal  Government 
the  individual  states  should  exercise  a  large  measure  of 
control  over  the  railroads,  each  state  organization  acting 
as  a  branch  of  the  National  Ministry  of  Transport.  The 
powers  of  the  state  organizations  were  to  be  gradually 
turned  over  to  the  National  Ministry,  which  through  its 
own  official  staff  should  eventually  assume  full  control  of 
the  various  lines.  After  this  control  has  been  fully  estab- 
lished the  Minister  of  Transport  is  to  develop  a  permanent 
form  of  organization  for  the  control  of  the  unified  system. 
The  immediate  operating  organization  of  the  railroads  is 
patterned  naturally  after  the  organization  which  formerly 
prevailed  in  Prussia,  the  roads  in  different  districts  being 


402  RAILROAD  TRANSPORTATION 

placed  in  charge  of  "directories"  with  a  president  in  charge. 

The  cooperation  of  shipping  interests  with  the  railway 
management  in  the  matter  of  fixing  rates  has  been  retained 
through  the  creation  of  a  National  Economic  Council,  one 
branch  of  which  devotes  its  attention  to  railway  problems, 
and  through  the  appointment  of  a  system  of  advisory  coun- 
cils, representing  the  leading  industrial  and  commercial  in- 
terests of  Germany.  These  councils  advise  the  Ministry 
of  Transport  on  questions  of  rate  policy.  The  German  rail- 
way laborers  are  likewise  represented  on  the  Railway 
Branch  of  the  National  Economic  Council,  and  have  a 
right  to  be  heard  on  all  questions  involving  wages  and 
working  conditions. 

The  administrative  system  of  the  German  railways  has 
not  yet  reached  final  form,  and  probably  will  not  until  the 
political  conditions  of  Europe  more  nearly  approach  a  state 
of  equilibrium.  It  seems  fairly  certain,  however,  that  the 
principle  of  government  ownership  and  operation  will  be 
retained,  and  that  the  German  railways  will  be  more  closely 
united  than  they  were  during  the  days  of  the  empire.  It 
will  be  interesting  to  see  if  state  ownership  will  be  as  suc- 
cessful under  a  republican  form  of  government  as  it  was 
under  the  military  autocracy  of  Prussia. 

The  results  which  the  Prussian  Government  achieved  in 
the  management  of  railroads  had  a  marked  influence  upon 
the  policy  of  other  European  countries.  In  all  the  coun- 
tries of  Europe  except  the  United  Kingdom  the  railroads 
have  been  partially  or  completely  nationalized.  Italy  tried 
government  ownership  and  operation  of  its  leading  rail- 
ways from  1868  to  1885,  and  then  abandoned  government 
operation,  leasing  the  lines  to  private  corporations.  This 
did  not  prove  satisfactory  and  in  1905  the  operation  of  the 
roads  by  the  government  was  again  resumed,  and  has  since 
been  continued. 

In  France  the  railroads  were  constructed  chiefly  at  the 


STATE  REGULATION  IN  GERMANY       403 

expense  of  the  government.  Seven  railroad  systems  were 
created  in  that  country  by  1883,  each  of  which  had  a  monop- 
oly in  a  certain  region.  Six  of  these  were  for  many  years 
operated  by  private  corporations  and  one  by  the  state.  In 
1907  one  of  the  private  systems  was  purchased  by  the  gov- 
ernment. The  charters  of  the  existing  private  companies 
will  expire  between  1950  and  i960,  and  if  no  alteration  is 
made  in  the  present  program  of  the  French  government 
the  state  will  in  that  decade  come  into  possession  of  all 
the  railroad  systems.  The  French  railroads,  like  nearly  all 
other  railroads  of  Europe,  were  controlled  by  the  govern- 
ment during  the  World  War,  and  it  is  not  unlikely  that 
complete  nationalization  will  occur  before  the  expiration 
of  the  charters  of  the  private  corporations. 

In  Belgium  and  in  Holland  about  one-half  of  the  rail- 
roads are  operated  by  the  state ;  in  Switzerland  virtually  all 
the  railroads  have  been  owned  and  operated  by  the  govern- 
ment since  1909;  in  the  states  which  formerly  composed  the 
Austro-Hungarian  Empire  and  in  the  Balkan  states  most 
of  the  railways  have  been  nationalized.  The  leading  lines 
of  Russia  have  been  built  and  operated  by  the  government. 
In  Sweden  the  privately  owned  railways  have  a  greater 
mileage  than  those  owned  by  the  state,  while  in  Norway 
only  a  small  part  of  the  railway  net  is  privately  owned. 

In  the  British  possessions  of  South  Africa,  Australasia 
and  India  privately  owned  railroads  are  few  in  number 
and  of  little  importance.  In  Japan  also  the  railways  are 
virtually  all  owned  and  operated  by  the  government.  The 
Chinese  government  owns  and  operates  several  railroads, 
though  the  leading  systems  of  China  are  controlled  by  for- 
eign governments  or  by  capitalists  of  foreign  nations. 

In  America  the  United  States  is  the  only  country  which 
has  consistently  adhered  to  the  policy  of  private  ownership 
and  operation  of  railways.  In  South  America  the  mileage 
of  privately  owned  railways  is  considerably  greater  than 


404  RAILROAD  TRANSPORTATION 

that  of  state  railways,  but  nearly  all  the  South  American 
governments  have  followed  the  practice  of  building  and 
operating  railway  systems.  In  the  Dominion  of  Canada  the 
Intercolonial  system,  which  was  constructed  by  the  gov- 
ernment for  political  purposes,  was  for  many  years  the 
only  state  railway,  but  the  financial  reverses  suffered  by  the 
Canadian  Northern  and  the  Grand  Trunk  systems  during 
the  course  of  the  war  have  resulted  in  the  taking  over  of 
these  lines  by  the  Canadian  government.  The  Canadian 
Pacific  is  now  the  only  important  privately  owned  and  oper- 
ated railroad  in  Canada. 

The  governmental  control  of  railroads  in  different  coun- 
tries of  the  world  has  assumed  a  wide  variety  of  forms. 
Social,  political  and  economic  conditions  are  not  the  same 
in  all  countries,  and  in  the  same  country  these  conditions 
change  from  time  to  time.  In  some  states,  such  as  France 
and  Germany,  the  individual  expects  the  government  to 
exercise  many  functions  which  the  citizens  of  other  coun- 
tries do  not  want  their  governments  to  perform.  The  Eng- 
lish political  ideal,  for  example,  has  been  to  minimize  the 
industrial  functions  of  the  government.  This  ideal  has 
had  a  marked  influence  in  the  economic  and  political  growth 
of  the  United  States. 

The  political  history  of  various  nations  has  shaped  the 
development  of  railway  policy.  In  Italy  and  Germany  the 
consolidation  of  railroads  under  state  control  was  part  of 
the  general  movement  for  political  and  economic  unifica- 
tion. The  fact  that  the  United  States  is  a  federal  state  com- 
posed of  a  large  number  of  States  which  have  the  power  to 
charter  and  regulate  railroads  has  unquestionably  colored 
the  railway  policy  of  this  country.  In  new  countries  one 
is  likely  to  find  that  the  government  undertakes  the  con- 
struction of  transportation  facilities  in  order  that  the  devel- 
opment of  natural  resources  may  proceed  as  rapidly  as 
possible.     The  early  railroads  of  the  United  States  were 


STATE  REGULATION  IN  GERMANY       405 

constructed  largely  at  public  expense.  In  Australia  and 
New  Zealand  public  funds  have  been  used  to  hasten  rail- 
road development. 

On  the  whole  the  present  tendency,  outside  of  the  United 
States,  is  for  the  government  to  displace  the  private  cor- 
poration in  the  ownership  and  management  of  transporta- 
tion facilities  as  well  as  of  other  public  utilities.  While  the 
change  has  been  due  in  part  to  considerations  of  a  financial 
and  political  character,  it  has  come  chiefly  from  the  steady 
growth  of  the  belief  that  society  itself,  through  its  political 
machinery,  should  perform  all  those  functions  which  are 
of  a  purely  public  nature  and  cease  delegating  them  to  pri- 
vate agencies. 

REFERENCES 

Hadlev,  A.  T.    Railroad  Transportation,  (1885). 

Hendrick,  F.  Railzvay  Control  by  Commissions,  chaps,  ii  and 
vii  (1900). 

Acworth,  W.  M.     The  Railways  of  England  (London,  1900). 

Meyer,  B.  H.  "Railway  Regulation  under  Foreign  and  Do- 
mestic Laws,"  in  Report  of  Industrial  Commission,  IX,  946- 

949.  955-957.  962"983  (1901). 
Robertson,  W.  A.     Combination  Among  Railway   Companies 

(1912). 

Raper,  C.  L.  Railzvay  Transportation,  chaps,  ii,  iii,  iv,  and 
ix-xi  (1912). 

The  Railway  and  Canal  Traffic  Acts,  etc.  (London,  1903.) 
[This  collection  contains  extracts  from  certain  laws  en- 
acted since  1853.] 

Reports  of  Royal  Commissions  or  of  Select  Committees  (on 
Railways),  1846,  1852,  1858,  1863,  1866-67,  1872,  1883. 

Public  General  Acts  of  Parliament. 

Pratt,  E.  A.     Railzvays  and  Their  Rates  (London,  1906). 

Bradford,  E.  S.  ''Prussian  Railway  Administration,"  in  An- 
nals of  American  Academy  of  Political  and  Social  Science, 
XXIX,  March  1907. 


406  RAILROAD  TRANSPORTATION 

Wehrman,    L.      "Die    Einrichtung    der    Staatseisenbahn-Ver- 

waltung,"  in  Archiv  fur  Eisenbahnwesen,  1913,  pp.   1-19. 
Dunn,    Samuel    O.      Government    Ownership    of    Railways 

Cunningham,  W.  J.  "The  Administration  of  the  State  Rail- 
ways of  Prussia-Hesse,"  in  Official  Proceedings  of  the  New 
York  Railroad  Club,  XXIII,  No.  6,  April  18,  1913;  abstract 
in  The  Railway  Library,  1913,  pp.  120-138. 

Archiv  far  Eisenbahnwesen.  [Each  year  complete  statistics 
of  Prussian  and  other  German  railways  are  given.] 


CHAPTER  XXIV 

PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  IN  THE 

UNITED  STATES 

Aid  given  by  the  States  to  railroads,  408.  Forms  of  aid  given  by 
the  States,  409.  Amount  of  aid  given  by  the  States,  409.  The 
results  of  state  aid  were  unsatisfactory,  410.  National  aid  to 
railroad  construction,  411.  Terms  of  the  land  grants,  412.  The 
grants  to  the  Pacific  roads,  412.  Repeal  of  the  land  grants,  415. 
The  loan  of  public  funds  to  aid  railroads,  415.  Concerning  the 
policy  of  loans  and  land  grants,  417.  County,  municipal,  and 
individual  aid  to  railroad  building,  418.  Local  individual  aid, 
419.     References,  420. 

The  railroads  in  the  United  States  have  been  built  and 
managed  mainly  by  private  agencies.  In  the  early  days  of 
railway  history  a  small  mileage  of  railway  in  Pennsylvania 
and  in  the  middle  West  and  South  was  built  and  operated 
by  State  authorities,  but  these  lines  were  long  ago  sold  or 
leased  to  private  corporations.  The  Federal  Government 
has  never  engaged  directly  in  the  construction  of  railways 
in  the  territory  now  comprising  the  States  except  for  mili- 
tary purposes  during  the  Civil  War,  though  it  operates  a 
line  of  railway  across  the  Isthmus  of  Panama,  and  is  now 
undertaking  the  construction  of  a  railway  system  in  the 
Territory  of  Alaska.  But  while  few  railroads  have  been 
built  by  the  governments  in  the  United  States,  the  private 
agencies  which  have  constructed  many  of  the  great  rail- 
way systems  have  received  from  the  public  a  large  amount 
of  substantial  aid.  This  aid  has  been  given  in  many  forms 
and  by  as  many  different  agencies — by  the  National  Gov- 
ernment, by  the  States,  by  county  and  city  governments,  and 
by  individuals. 

407 


408  RAILROAD  TRANSPORTATION 

Aid  Given  to  Railroads  by  Individual  States 

The  States  began  actively  to  construct  railroads  or  to  aid 
in  building  them  in  1837,  although  a  few  of  the  States  had 
given  assistance  previous  to  that  date.  State  aid  to  rail- 
road building  was  a  part  of  the  policy  of  government  aid 
to  works  of  internal  improvement.  (The  construction  of 
canals  and  turnpikes,  as  has  been  noted  in  a  previous  chapter, 
had  been  assisted  by  the  States  after  181 5// When  the  rail- 
road had  shown  itself  to  be  an  efficient  transportation  agent, 
there  at  once  arose  a  demand,  which  was  especially  strong 
in  the  States  whose  industrial  development  was  least  ad- 
vanced, for  a  rapid  construction  of  railways.  The  States 
responded  to  this  popular  demand  not  only  because  there 
was  a  demand  for  transportation  facilities  for  the  develop- 
ment of  the  resources  of  the  country,  but  also  because  it  was 
supposed  that  the  Government  could  raise  the  funds  for  the 
construction  of  the  railroads  with  very  little  effort.^During 
the  years  which  preceded  and  followed  the  panic  of  1837  it 
was  supposed  by  many  of  the  States  that  banking  institutions 
could  create  capital.  J  The  banks  were  regarded  as  institu- 
tions by  means  of  which  credit  could  be  extended,  and  the 
faith  of  the  people  in  the  development  of  the  resources  of 
the  country  was  such  that  they  thought  the  credit  created 
by  the  banks  could,  without  difficulty,  be  made  actual  capital. 
At  the  timevt4d^^»Hacy-A¥a^_pi:€i»k4it3lhe  national  revenue 
from  the  sale  of  public  lands  was  especially  large,  and  the 
United  States  Government  accumulated  between  1830  and 
1837  a  considerable  surplus,  which  it  unwisely  decided 
in  1837  to  distribute  among  the  States.  This  distribution  of 
the  surplus  revenue  by  the  National  Government  stimulated 
the  establishment  of  unsound  banking  institutions,  and 
caused  the  States  to  go  further  and  faster  with  their  pol- 
icy of  aiding  railroads  than  they  otherwise  would  have 
gone. 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  409 

The  assistance  given  by  the  States  to  railroad  construc- 
tion most  often  took  the  form  of  the  purchase  of  the  stocks 
of  railway  corporations.  Sometimes  bonds  were  purchased, 
and  sometimes  there  was  a  donation  of  state  funds,  either 
as  cash  or  state  securities.  The  aid  given  by  the  State  was 
regarded  more  as  loans  than  as  gifts,  but,  as  a  matter  of 
fact,  the  investments  or  advances  made  by  the  States 
were  only  partly  paid  back.  Several  of  the  States  engaged 
directly  in  the  construction  of  railroads.  Other  common- 
wealths, particularly  after  1850,  made  large  grants  of 
public  lands  to  the  railroad  corporations,  the  lands  thus 
granted  having  been  received  by  the  States  from  the  Na- 
tional Government. 

The  amount  of  aid  given  by  the  States  to  railroads  cannot 
be  stated  precisely,  but  the  figures  available  indicate  that  the 
total  donations  were  large.  The  entire  debts  of  the  States 
in  1841  exceeded  $231,000,000.  These  debts  had  been  con- 
tracted partly  for  the  purpose  of  assisting  banking  institu- 
tions, which  had  received  not  less  than  $50,000,000,  and 
partly  for  the  construction  of  works  of  internal  improve- 
ment. 

T)f*the  state  funds  used  in  promoting  internal  improve- 
ments, the  amount  paid  out  on  canals  and  turnpikes  much 
exceeded  the  amount  expended  on  railroads.  But  the  sum 
contributed  by  the  States  for  railroads  in  the  West,  and  more 
especially  in  the  South,  after  1841  was  greater  than  the 
amount  given  before  that  date.  The  State  of  Missouri,  for 
instance,  which  spent  nearly  $32,000,000  on  railroad  con- 
struction, of  which  sum  only  a  little  over  $6,000,000  was 
ever  again  obtained  by  the  State,  granted  very  little  aid 
before  1850.  Tennessee  incurred  a  debt  of  $29,234,000 
by  aiding  railroads ;  of  this  sum  over  half  was-  contracted 
after  i860.  North  Carolina  had  a  similar  experience.  Of 
the  New  England  States,  Massachusetts  was  the  only  one 
that  aided   railroad  building,  her  assistance  amounting  to 


410  RAILROAD  TRANSPORTATION 

$6,044,000.  There  were  19  States  in  all  which  gave  or  ad- 
vanced public  funds  for  the  construction  of  railroads, 
Illinois,  Indiana,  Michigan,  Georgia,  Tennessee,  North 
and  South  Carolina,  Missouri,  Virginia,  and  Louisiana  be- 
ing those  which  contracted  the  largest  debts  for  this  pur- 
pose. 

The  aid  given  by  the  American  States  to  railroad  build- 
ing accomplished  small  results.     In  most  of  the  States  con- 
cerned there  was   little  appreciation   of   the  necessity   for 
adhering  to  conservative  fiscal  methods.    Many  of  the  enter- 
prises  aided   by  the   States   were   of   relatively   small   im- 
portance.    The   States   granted   their  credit   lavishly,   with 
little  concern  for  the  method  by  which  the  securities  issued 
were  to  be  paid.    In  due  time  it  was  discovered  that  banks 
could  not  create  capital,  and  that  railroads  could  not  immedi- 
ately develop  the  resources  of  the  sections  through  which 
they  were  built,  and  that  the  ability  of  the  States  to  raise 
funds  by  taxation  did  not  increase  so  rapidly  as  the  debts 
of  the  States  were  enlarged.  £jn  nearly  all  cases  the  rail- 
roads constructed  by  the  States  were  sold  out  to  corpora- 
tions for  but  a  small  fraction  of  what  had  been  expended 
upon  the  roads.     Several  of  the  States,  moreover,  decided 
to  repudiate  the  debts,  and  on  the  whole  the  connection  of 
the   States   with   banking   institutions   and   with   works   of 
internal   improvement  constitutes  a  regrettable  chapter  in 
the  history  of  American  finance.    The  funds  expended,  how- 
ever, were  by  no  means  altogether  wasted,  j  Railroads  were 
constructed  earlier  and  more  rapidly  than  they  could  have 
been  built  by  private  capital,  and  the  resources  in  many 
parts  of  the  country  became  available  sooner  than  would 
otherwise   have   been    the   case.      The    corporations   which 
acquired  the  roads  obtained  the  larger  share  of  the  bene- 
fits,  but   the  general   public   was   assisted   to   some   extent 
by  the  lavishness  of  the  States  in  aid  of  railroad  build- 
ing. 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  411 

National  Aid  to  Railroad  Construction 

The  National  Government  began  assisting  railroad  con- 
struction later  than  the  States,  but  it  has  contributed  even 
more  than  they  have  given.  Most  of  the  aid  given  by  Con- 
gress to  the  railroads  has  consisted  of  grants  of  land  from 
the  public  domain,  although  a  few  companies  received  large 
loans  from  the  Federal  treasury.  The  first  extensive  grant 
of  land  to  further  railroad  building  was  made  in  1850, 
when  Congress  gave  to  Illinois,  Alabama,  and  Mississippi 
about  4,000,000  acres  of  land  to  be  used  by  those  States 
in  aiding  the  construction  of  the  Illinois  Central  and  the 
Mobile  and  Ohio  lines,  by  which  Chicago  was  to  be  con- 
nected with  New  Orleans  and  Mobile.  During  the  next 
20  years  about  80  such  grants  were  made  to  the  States  in 
the  Mississippi  Valley. 

In  aiding  the  construction  of  roads  built  within  the 
boundaries  of  the  States,  Congress  for  some  years  did  not 
donate  land  directly  to  corporations,  but  gave  the  land  to 
States  as  trustees,  which  were  to  turn  the  land  over  to 
the  railway  companies.  The  tendency  in  the  fifties  was  to 
interpret  the  Constitution  more  narrowly  than  it  has  been 
interpreted  since  the  Civil  War,  and  many  persons  ques- 
tioned whether  Congress  had  the  power  to  donate  land 
located  within  a  State  to  a  railroad  corporation.  When,  in 
1862  and  later,  the  occasion  arose  for  aiding  companies  to 
build  lines  through  the  Territories,  Congress  did  not  hesi- 
tate to  make  grants  directly  to  the  corporations;  and  after 
the  Civil  War  grants  were  made  to  companies  from  lands 
jwithin  the  States. 
"The  first  direct  grants  to  corporations  were  made  in 
1862  to  secure  a  road  from  the  Missouri  River  to  the  Pa- 
cific Ocean.  For  a  score  of  years  Congress  had  been  urged 
to  aid  in  constructing  a  road  to  the  Pacific,  but  action  was 
delayed  from  time  to  time,  mainly  because  of  the  rivalry 


Jr 


> 


412  RAILROAD  TRANSPORTATION 

of  the  Southern  and  Northern  States  as  to  the  route  to 
be  chosen.  After  the  Southern  States  seceded  Congress 
was  able  to  act,  and  the  Civil  War  greatly  increased  the 
need  of  rail  connection  between  the  western  part  of  the 
country  and  the  section  east  of  the  Rocky  Mountains. 
Military  and  political  as  well  as  economic  reasons  then 
impelled  Congress  to  act. 

In  making  these  grants  to  railroads  the  United  States 
sought,  among  other  purposes,  to  increase  the  accessi- 
bility and  value  of  the  public  lands  not  given  away.  The 
grant  to  Illinois  for  the  Illinois  Central  Railroad — the 
first  large  grant — was  the  model  followed  in  all  the  subse- 
quent donations ;  some  companies  received  more  land  per 
mile  of  road  than  others  did,  but  all  the  grants  had  the 
same  general  terms.  According  to  the  Illinois  grant,  the 
railroad  company  was  given  a  right  of  way  200  feet  wide 
through  the  public  lands,  and  was  also  given  alternate 
(the  even  numbered)  sections  of  land  on  each  side  of  the 
line  for  a  distance  of  six  miles  from  the  road.  The  com- 
pany thus  secured  half  the  land  within  a  strip  12  miles 
wide,  or  six  square  miles  of  land,  for  each  mile  of  track 
built.  If  any  of  the  land  within  this  12-mile  strip  had 
previously  been  disposed  of  by  the  Government,  the  rail- 
road might  select  an  equal  area  within  15  miles  of  the 
railroad.  The  alternate  (odd  numbered)  sections  retained 
by  the  Government  within  the  12-mile  strip  were  not  to  be 
sold  for  less  than  $2.50  an  acre.  In  the  grants  made  at  a 
later  date  a  wider  strip  of  land  was  donated,  and  in  some 
cases  the  Government  did  not  agree  to  charge  $2.50  or  more 
an  acre  for  the  sections  it  retained  within  the  land-grant 
trip. 

The  grants  made  from  1862  to  1871  to  aid  the  build- 
ing of  roads  from  the  Mississippi  and  Missouri  Rivers  to 
the  Pacific  Ocean  were  for  several  reasons  larger  than 
those  previously  made.     The  lands  given  away  were  less 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION    413 

valuable  than  those  located  within  the  States  near  the 
Mississippi  River,  while  the  cost  and  difficulties  of  build- 
ing the  roads  over  the  Rocky  Mountains  were  necessarily 
greater  than  they  had  been  in  the  Mississippi  Valley.  Con- 
gress, moreover,  had  grown  more  liberal  than  it  had  been 
during  the  fifties.  j.By  the  act  of  1862,  as  amended  in  1864, 
the  Union,  Kansas,  and  Central  Pacific  Companies,  and  the 
three  other  corporations  which  undertook  to  build  the  first 
tracks  from  the  Missouri  River  to  the  Pacific  Ocean,  were 
given  10  square  miles  of  land  for  each  mile  of  line.  The 
grant  to  the  Union  Pacific,  the  company  which  built  the 
road  from  Omaha  to  Ogden,  amounted  to  12,000,000  acres. 
The  grant  to  the  Central  Pacific  Company,  which  con- 
structed the  track  between  Sacramento,  Cal.,  and  Ogden,  was 
8,000,000  acres.  The  company  which  later  came  to  have 
the  name  of  the  Kansas  Pacific  Company  was  granted 
6,000,000  acres,  and  the  other  companies  concerned  in  build- 
ing this  first  Pacific  connection  were  to  receive  nearly 
7,000,000  acres.  Thus  33,000,000  acres,  a  gift  of  an  area 
considerably  larger  than  the  State  of  Pennsylvania,  was 
offered  by  Congress  to  induce  corporations  to  build  the  first 
railroad  across  the  Western  plains  and  mountains.  In 
addition  to  this  gift  these  corporations  received  a  large 
loan  of  funds  from  the  United  States. 

The  Atchison,  Topeka  and  Santa  Fe  received  a  grant 
of  3,000,000  acres  in  1863,  and  three  years  later  the  At- 
lantic and  Pacific  Railroad,  which  is  now  a  part  of  the 
Atchison  system,  received  a  grant  of  42,000,000  acres — a 
grant  of  enormous  area  but  of  relatively  small  value. 
Much  of  this  grant  reverted  to  the  United  States  by  for- 
feiture. In  1864  a  grant  of  about  as  great  area  and  of 
much  greater  value  was  made  to  the  Northern  Pacific. 
The  roads  now  comprised  in  the  Texas  and  Pacific  re- 
ceived nearly  23,000,000  acres,  and  the  Southern  Pacific 
obtained   14,000,000  acres.     The  grants  made  to  each  of 


414.  RAILROAD  TRANSPORTATION 

the  last  four  companies  mentioned  comprised  20  sections 
of  land  per  mile  of  road  in  the  States  and  40  sections  per 
mile  in  the  Territories. 
>W  During  the  10  years  ending  in  1871  Congress  made 
grants  to  23  companies.  The  grants  made  between  1850 
and  1 87 1  have  placed  at  the  disposal  of  the  railway  com- 
panies about  159,000,000  acres  of  the  public  domain — 
an  area  exceeding  five  States  like  Pennsylvania.  The  orig- 
inal grants  made  available  for  sale  by  the  railroad  companies 
a  larger  area  than  this,  but  parts  of  the  grants  reverted 
to  the  United  States,  and  less  than  159,000,000  acres  will 
actually  pass  to  the  railroads,  because  in  many  instances 
the  companies  have  not  been  able  to  comply  with  the  condi- 
tions imposed  in  the  grants.  The  companies  were  granted 
a  certain  number  of  sections  of  land  per  mile  of  line  con- 
structed, but  could  claim  the  land  or  receive  a  "patent" 
from  the  United  States  only  after  completing  a  designated 
mileage  of  track — 20,  25,  or  40  miles — i.  e.,  as  each  stretch  of 
track  of  designated  length  was  completed  the  land  corre- 
sponding to  that  mileage  might  be  claimed.  The  companies 
have  not  received  all  the  land  to  which  their  work  of 
road  construction  entitles  them.  The  United  States  now 
annually  gives  the  companies  patents  to  large  amounts  of 
land.  Most  of  the  companies  failed  to  complete  their  lines 
within  the  time  fixed  by  the  grants,  and  some  of  the  con- 
templated roads  were  never  built.  However,  a  failure  to 
finish  a  road  within  the  time  set  by  law  was  held  by  the  Su- 
preme Court  not  to  work  a  forfeiture  of  the  grant  with- 
out an  act  of  Congress  declaring  the  grants  forfeited ;  in- 
deed, only  about  half  of  the  mileage  to  which  the  donations 
of  land  applied  were  completed  within  the  legal  time  limit, 
and  many  companies  were  allowed  to  continue  construction 
and  to  secure  the  land  corresponding  to  the  new  mileage 
after  the  period  set  by  law  for  securing  the  benefit  of  the 
grants  had  expired.     The  total  amount  of  land  secured  by 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  415 

the  railroads  from  the  Federal  Government  up  to  June  30, 
1914,  was  116,512,262  acres;  and  the  companies  are  en- 
titled under  their  grants  to  receive  several  million  acres 
more.  The  General  Land  Office  of  the  United  States  isf 
unable  to  state  just  how  many  acres  will  be  patented  in 
adjusting  all  the  grants.  The  original  grants  applied  to 
about  15,000  miles  of  railroad. 

During  the  seventies  there  developed  a  strong  popu- 
lar sentiment  against  the  granting  of  public  land  to  rail- 
road corporations,  and  an  agitation  was  started  to  influ- 
ence Congress  to  declare  all  the  land  forfeited  that  had 
not  been  earned  by  the  construction  of  lines  within  the 
time  stipulated  in  the  grants.  Congress  acted  regarding 
a  few  grants  during  the  eighties,  and  in  1890  passed  a  law 
providing  for  the  forfeiture  of  all  lands  "opposite  to  and 
coterminous  with  the  portions  of  any  such  railroad  not 
now  completed  and  in  operation."  The  lands  now  being 
claimed  by  the  companies  are  for  mileage  finished  prior  to 
the  passage  of  that  law.  This  agitation  for  the  repeal 
of  the  land  grants  was  due  in  part  to  the  popular  feeling 
against  railroads  that  developed  in  connection  with  the  effort 
to  subject  railroad  corporations  to  public  control;  but  the 
demand  for  the  repeal  of  the  land  grants  came  mainly  be- 
cause of  the  conviction  that  the  public  domain  should  be 
disposed  of  only  to  settlers  or  "homesteaders,"  and  in 
small  tracts  of  160  acres. 

The  companies  which  built  the  first  Pacific  road  were 
aided  by  a  loan  of  United  States  funds  as  well  as  by  dona- 
tions of  public  lands.  By  the  act  of  1862,  as  amended  in 
1864,  the  United  States  Government  permitted  the  Union 
Pacific  and  Central  Pacific  and  certain  other  smaller  com- 
panies to  sell  United  States  thirty-year  6  per  cent  bonds 
to  secure  a  part  of  the  capital  to  be  used  in  building  the 
roads.  As  each  section  of  20  miles  was  completed  the  rail- 
road companies   received  these  bonds  to  the  amount   of 


416  RAILROAD  TRANSPORTATION 

"$16,000  for  each  mile  east  of  the  eastern  base  of  the  Rocky 
Mountains  and  west  of  the  western  base  of  the  Sierra  Ne- 
vada, $48,000  for  each  of  the  150  miles  west  of  the  eastern 
base  of  the  Rocky  Mountains  and  150  miles  east  of  the 
western  base  of  the  Sierra  Nevada,  and  $32,000  foi  each 
mile  intervening  between  the  two  mountain  sections."  As 
security  for  the  repayment  of  the  loan,  the  United  States, 
by  the  act  of  1864,  took  a  second  mortgage  on  the  roads 
aided.  The  companies  were  allowed  to  sell  their  own  bonds 
and  to  issue  a  first  mortgage  equal  to  the  amount  of  the 
Government's  second  mortgage.  The  United  States  ex- 
pected the  companies  to  pay  the  interest  and  the  principal 
of  the  Government  loan  by  applying  5  per  cent  of  their  net 
earnings  to  that  purpose,  and  by  carrying  the  Government's 
mails,  troops,  and  military  supplies. 

The  Government  bonds  received  by  the  Union  Pacific 
Company  amounted  to  $27,236,512,  those  obtained  by  the 
Central  and  Western  Pacific  Companies  to  $27,855,680,  and 
those  by  the  company  later  called  the  Kansas  Pacific  to 
$6,300,000.  Two  other  companies  received  bonds  to  the 
value  of  $3,228,320,  making  the  total  sum  originally  ad- 
vanced by  the  Government  to  the  six  companies  $64,620,512. 
The  incomes  from  the  operation  of  these  roads  were  much 
less  than  had  been  expected,  and  the  net  earnings  were 
-ither  non-existent  or  so  small  that  the  companies  were  un- 
able to  pay  interest  on  the  Government  bonds  they  had  re- 
ceived, and  the  debts  of  the  roads  to  the  United  States  rap- 
idly grew  larger.  In  1878  Congress  passed  the  Thurman 
Act  providing  for  a  sinking  fund  to  be  managed  by  the 
Government  and  requiring  larger  payments  from  the  com- 
panies ;  but  the  debts  to  the  United  States  continued  to  in- 
crease. The  United  States  effected  a  settlement  with  the 
owners  of  the  Union  Pacific  in  1897,  and  was  fortunate  in 
obtaining  the  full  amount  advanced  as  principal  and  inter- 
«st,  thus  losing  only  the  interest  on  the  interest  payments. 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  417 

\^  The  settlement  with  the  Kansas  Pacific,  which  was  made 
in  1898,  was  less  advantageous ;  the  United  States  secured 
the  return  of  the  principal  of  the  bonds  and  about  one-eighth 
of  the  amount  paid  as  interest.  The  indebtedness  of  the 
Central  Pacific  Company,  principal  and  accumulated  inter- 
est, amounted  to  $58,812,715  at  the  beginning  of  1899,  at 
which  time  an  arrangement  was  made  whereby  this  sum 
was  funded  into  20  promissory  notes  bearing  3  per  cent  in- 
terest, one  note  being  payable  each  six  months  for  10  years. 
For  many  years  it  seemed  certain  that  the  United  States 
must  lose  the  greater  share  of  the  large  sum  it  had  loaned 
to  these  companies,  and  such  would  have  been  the  result 
had  the  Government  not  had  the  good  fortune  of  bringing 
about  a  settlement  at  the  beginning  of  a  period  of  business 
prosperity.  This  experience  of  the  Government  in  aiding 
private  corporations  was  so  unsatisfactory  that  Congress 
will  probably  not  soon  care  to  repeat  the  experiment. 

In  granting  the  public  lands  and  loaning  its  bonds  to 
corporations  to  further  railroad  construction,  the  National 
Government  sought  to  accomplish  several  purposes :  one 
was  to  secure  better  transportation  facilities  for  the  mails 
and  troops  of  the  Government;  another  object  was  to  con- 
nect the  Mississippi  Valley  with  the  States  beyond  the 
Rocky  Mountains ;  another  reason  was  the  desire  of  the 
Government  to  promote  the  settlement  of  the  country,  and 
thus  to  increase  the  wealth  and  strength  of  the  people  of 
the  United  States.  The  Government,  moreover,  acted  as 
a  landlord  with  an  immense  tract  of  land  having  very  little 
value.  A  part  of  this  large  tract  of  land  was  given  away 
in  order  that  the  land  retained  might  possess  a  greater  value. 
The  policy  of  giving  away  the  public  domain  to  corpora- 
tions has  been  much  criticized.  Unquestionably  the  United 
States  was  more  liberal  than  it  need  have  been,  and  if  the 
public  had  chosen  to  wait  20  years  the  railroads  in  the 
central  West  and  between  the  Mississippi  Valley  and  the 


418  RAILROAD  TRANSPORTATION 

Pacific  Ocean  would  have  been  constructed  by  private  cap- 
ital. The  liberal  donations  of  public  land  caused  the  rail- 
roads in  that  section  of  the  country  to  be  built  earlier  than 
they  would  otherwise  have  been  constructed,  the  West  was 
settled  up  more  quickly,  and  the  Government  has  been  able 
to  dispose  of  many  parts  of  the  domain  it  did  not  give  away 
at  an  earlier  date,  and  possibly  more  advantageously  than 
they  could  have  been  sold  had  none  of  the  land  been  given 
to  the  railroad  corporations. 

As  we  now  view  the  matter  in  retrospect,  it  seems  that 
Congress  was  too  eager  to  dispose  of  the  public  lands.  The 
existence  of  an  unoccupied  public  domain  upon  which  those 
may  draw  who  are  seeking  homes  and  an  independent  po- 
sition industrially  and  socially  is  an  advantage  to  society 
which  we  are  coming  to  appreciate  more  fully  as  the  new 
lands  available  for  settlement  are  rapidly  decreasing  in 
area,  accessibility,  and  fertility.  As  the  question  appeared 
to  Congress  from  1850  to  1870,  the  necessity  for  greater 
transportation  facilities  than  unaided  private  capital  was 
disposed  to  provide  seemed  imperative.  The  United  States 
had  a  vast  unoccupied  domain  that  would  be  of  little  value 
to  the  country  until  settled ;  and  Congress  decided  to  hasten 
the  occupation  of  the  West  by  aiding  railroad  companies. 
Had  the  policy  of  land  grants  been  carried  out  in  a  more 
conservative  manner,  the  results  obtained  might  probably 
have  been  secured  at  less  cost  to  the  public. 

County,  Municipal,  and  Individual  Aid  to  Railroad 

Building 

The  contributions  made  by  municipalities  and  counties 
cannot  be  stated  exactly,  but  enough  figures  are  available 
to  show  that  the  total  amount  must  have  been  large.  Ac- 
cording to  the  census  of  1870,  there  were  then  outstanding 
$185,000,000  of  county  and  municipal  bonds  which  had  been 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  419 

issued  to  aid  railroads.  What  additional  amount  of  bonds 
had  been  paid  off  and  canceled  prior  to  1870  is  not  known, 
but  probably  the  sum  was  considerable.  In  the  State  of 
New  York  the  county  and  municipal  subscriptions  amounted 
to  about  $30,000,000,  and  in  Massachusetts  the  towns  voted 
$2,350,000  toward  railroad  construction.  In  1873  the  Rail- 
road and  Warehouse  Commission  of  Illinois  addressed  a 
circular  letter  to  each  of  the  county  clerks  in  the  State 
requesting  them  to  report  how  much  aid  had  been  voted 
and  issued  by  the  counties  and  towns  to  railroads.  Replies 
were  received  from  86  of  the  102  counties  of  the  State,  and 
it  was  reported  that  in  those  86  counties  the  bonds  and 
money  voted  and  issued  equaled  $16,087,027.  This  would 
indicate  that  nearly  $20,000,000  of  aid  had  been  given  to 
the  railroads  by  the  local  governments  in  Illinois.  Local 
aid  to  railroads  was  general  in  all  parts  of  the  United  States, 
and  in  view  of  the  fact  that  the  counties  and  towns  of 
Illinois  and  New  York  gave  nearly  $50,000,000,  the  total 
county  and  town  aid  given  in  the  entire  country  probably 
amounted  to  several  hundred  million  dollars. 

These  large  sums  were  voted  by  the  counties  and  towns 
in  the  new  sections  of  the  country  because  their  material 
progress  depended  entirely  upon  their  securing  access  to 
markets.  People  thought  themselves  justified  in  making 
large  sacrifices  to  secure  good  transportation  facilities  at 
an  earlier  date  than  they  could  be  obtained  by  depending 
on  unaided  private  capital.  Generally  speaking,  the  thought 
was  a  correct  one,  but  the  corporations  in  some  instances 
secured  larger  amounts  than  the  public  need  have  given  to 
secure  the  railway  desired.  A  favored  method  by  which 
companies  secured  a  large  bonus  was  that  of  surveying 
two  alternative  routes — a  route  through  each  of  two  rival 
towns — for  the  purpose  of  getting  the  towns  to  bid  against 
each  other  for  the  railroad. 

The  companies  secured  capital  from  individuals  as  well 


420  RAILROAD  TRANSPORTATION 

as  from  the  counties  and  municipalities.  The  farmers  and 
merchants  living  along  the  line  of  a  proposed  road,  particu- 
larly in  the  central  West,  were  persuaded  to  purchase  stock 
of  the  corporations  proposing  to  build.  In  some  cases  the 
stocks  thus  purchased  were  good  investments,  but  in  other 
instances  the  companies  were  so  financiered  during  the 
period  of  construction  that  bankruptcy  and  reorganization 
followed  close  after  the  completion  of  the  road,  and  par- 
tially or  wholly  destroyed  the  value  of  the  stocks  held  by 
the  local  purchasers.  The  persons  who  benefited  by  these 
reorganizations  consisted  largely  of  eastern  capitalists, 
against  whom  the  farmers,  merchants,  and  business  men 
in  the  towns  of  the  central  West  came  to  feel  very  bitter. 
Moreover,  having  thus  lost  a  large  part  of  their  investments, 
the  local  contributors  felt  that  they  were  entitled  to  favor- 
able rates,  but  they  presently  found  that  they  were  charged 
higher  rates  and  fares  than  were  the  shippers  living  in  the 
large  cities  where  the  carriers  were  subject  to  competition. 
This  discrimination  against  the  local  shipper  intensified  the 
antagonism  of  the  public  to  the  management  of  the  railways, 
and  brought  about  the  enactment  of  laws  regulating  rates 
and  fares  and  the  other  relations  of  the  railways  to  the  pub- 
lic. The  fact  that  the  public  had  aided  the  companies  to 
build  their  roads  accentuated  the  demand  for  public  regula- 
tion. 

REFERENCES 

Million,  J.  W.  State  Aid  to  Railways  in  Missouri  ( 1896) .  [This 
scholarly  volume  also  contains  a  brief  account  of  the  aid 
given  by  the  Southern  States,  pp.  196-201.] 

Scribner's  Statistical  Atlas  (1883).  [Consult  map  and  text  re- 
garding land  grants.] 

Sanborn,  J.  B.  "Congressional  Grants  of  Land  in  Aid  of  Rail- 
ways," in  Bulletin  of  the  University  of  Wisconsin,  No.  30, 
1899- 


PUBLIC  AID  TO  RAILROAD  CONSTRUCTION  421 

Davis,  J.  P.     The  Union  Pacific  Railway  (1894).     [A  detailed 

and  valuable  work.] 
Crawford,  J.  B.     Credit  Mobiher  of  America  (1880). 
Donaldson,  Thomas  C.     The  Public  Domain.     (House  Misc. 

Doc.  No.  45,  47  Cong.,  2  sess.,  pt.  4,   1884.)      [Contains 

nearly  all  the  important  documents  relating  to  the  public 

domain.] 
Ripley,  W.  Z.    Railroads:  Rates  and  Regidation,  chap,  i  (1912). 
Annual   Report   of   the    Commissioner   of   the    General   Land 

Office. 
General  Land  Office,  Washington.     "Statement  Showing  Land 

Grants  Made  by  Congress"  (1915). 


CHAPTER  XXV 

REGULATION    OF    RAILROADS   BY   THE   AMERICAN 
STATE  GOVERNMENTS— THE  STATE  COMMISSIONS 

Powers  of  the  Federal  and  State  governments  over  railroads,  422. 
Little  regulation  before  1870,  423.  Charter  limitations  on  rates 
and  profits,  424.  Early  railroad  commissions  and  their  func- 
tions, 426.  The  demand  for  rate  regulation,  427.  The  two 
types  of  railroad  commissions,  427.  The  Massachusetts  com- 
mission of  1869,  427.  Railroad  regulation  in  the  West  and 
South,  429.  The  granger  laws  and  the  Illinois  commission, 
430.  Granger  laws  upheld  by  the  Supreme  Court,  432.  The 
Wabash  decision  of  1886,  433.  Modification  of  the  early  granger 
laws,  434.  Recent  methods  of  state  regulation;  the  utilities 
commission,  435.  The  powers  of  present  state  commissions ; 
the  law  of  Illinois,  436.  Railroad  commissions  and  corpora- 
tion commissions,  439.  Objections  to  state  regulation,  440. 
Changes  effected  by  the  Transportation  Act  of  1920,  443.  Ref- 
erences, 445. 

In  the  United  States  as  in  the  United  Kingdom  the  Gov- 
ernment has  sought  to  supervise  or  regulate  rather  than  to 
monopolize  the  business  of  rail  transportation.  By  the 
Constitution  the  power  "to  regulate  commerce  with  for- 
eign nations,  and  among  the  several  States  and  with  the  In- 
dian tribes"  is  vested  in  Congress,  while  each  State  has  au- 
thority over  the  commerce  that  does  not  pass  its  boundaries. 
The  regulation  of  international  and  interstate  commerce 
is  vested  in  Congress ;  the  control  of  intrastate  commerce 
is  exercised  by  the  several  States.  There  are  forty-nine 
governments  in  the  continental  United  States  possessing 
authority  over  railroads.  The  problem  of  railway  regula- 
tion is  unavoidably  a  large  and  complicated  one  in  a  coun- 

422 


STATE  REGULATION  OF  RAILROADS     423 

try  as  extensive  as  ours,  and  the  division  of  political  author- 
ity resulting  from  our  federal  plan  of  government  has  made 
the  problem  a  more  complex  one  than  it  would  be  were  there 
only  one  controlling  authority,  as  is  the  case  in  the  United 
Kingdom,  France,  Austria,  and  most  other  European  coun- 
tries. 

The  States  preceded  the  Federal  Government  with  legis- 
lation for  the  regulation  of  railways.  The  State  alone  could 
charter  a  corporation  to  construct  and  operate  a  railroad 
within  its  borders,  and,  as  the  corporation  derived  its  powers 
from  its  charter,  the  States  were  in  a  position  to  exercise 
such  control  over  the  railroads  as  they  chose  to  exert.  The 
control  which  was  actually  exercised  was  slight — much  less 
thorough  in  many  particulars  than  the  public  welfare  de- 
manded. The  tendency  in  this  country  has  been  to  mini- 
mize government  interference  with  railways  as  much  as  it 
has  been  thought  possible  to  do  without  jeopardizing  public 
interests,  but  the  minimum  of  interference  which  has  been 
considered  safe  has  not  always  been  the  same. 

During  the  period  from  1840  to  1870  many  States  gave 
aid  to  railroad  construction,  and  from  1850  to  1870  the  Na- 
tional Government  assisted  the  Western  lines.  The  States 
also  showed  some  tendency  to  regulate  the  railway  compa- 
nies, but  government  interference  was  rather  for  supervi- 
sion than  for  regulation.  From  1850  to  1870  there  was  but 
little  effort  made,  outside  of  New  England,  even  to  super- 
vise the  railway  business.  This  was  the  period  of  the  domi- 
nance of  the  laissez  faire  or  let-alone  doctrine  of  govern- 
ment. The  experience  of  the  United  States  during  this 
period,  however,  indicated  that  too  much  confidence  had 
been  placed  in  the  efficiency  of  unrestrained  interrailway 
competition  as  a  regulator  of  the  railway  business;  conse- 
quently since  1870  most  of  the  States  as  well  as  Congress 
have  endeavored  to  control  the  relations  of  the  rail- 
roads to  each  other  and  to  the  public,  and  the  present  ten- 


424  RAILROAD  TRANSPORTATION 

dency  in  the  States  is  toward  an  increasingly  stringent  regu- 
lation. 

In  the  beginning  an  effort  was  made  to  subject  the  rail- 
roads to  the  kind  of  regulation  that  had  been  exercised  over 
the  turnpike  roads  and  canals.  It  was  supposed  that  the 
railway  was  only  an  improved  road,  and  that  shippers  and 
travelers  would  use  their  own  vehicles  for  more  or  less  of 
the  traffic.  The  early  charters,  being  modeled  after  the 
canal  and  turnpike  charters  that  had  preceded  them,  not 
only  contained  provisions  regarding  the  organization  of  the 
corporation  and  the  exercise  of  the  State's  power  of  emi- 
nent domain  to  secure  a  right  of  way,  but  also  included 
sections  regarding  the  erection  of  tollgates  and  the  regula- 
tion of  the  tolls  or  charges  which  might  be  made.  In  many 
cases  the  charters  fixed  the  maximum  charges,  and  in  other 
instances — especially  in  the  New  England  States — the  rail- 
way companies  were  permitted  to  fix  their  own  charges,  sub- 
ject to  periodic  revision  by  the  States  in  case  the  net  earn- 
ings should  exceed  a  stated  per  cent  of  the  capital  invested. 

Charter  and  statute  provisions  regarding  tollgates  on  rail- 
roads soon  disappeared ;  but  the  policy  of  fixing  maximum 
rates  and  fares  for  traffic  by  railroad  was  continued  to  some 
extent.  However,  the  charter  stipulations  and  other  early 
legislative  enactments  fixing  maximum  rates  or  maximum 
profits  exerted  very  little  influence  upon  the  actual  charges 
of  the  railways,  because  the  limits  set  were  placed  so  high. 
The  maximum  rates  fixed  by  the  charters  were  considerably 
higher  than  the  railroads  actually  charged.  Furthermore, 
it  was,  and  has  always  been,  easy  for  a  company  to  keep  its 
net  earnings  from  exceeding  a  fixed  per  cent  of  its  capital 
as  long  as  it  has  the  power  of  increasing  its  capitalization  by 
the  issue  of  new  stock. 

Although  the  charter  limitations  on  charges  and  profits 
proved  ineffective,  there  was  little  disposition  on  the  part 
of  the  State  governments  before  1870  to  pass  laws  fixing 


STATE  REGULATION  OF  RAILROADS     425 

rates  and  fares.  The  public  thought  it  might  safely  depend 
on  interline  competition  for  protection  against  exorbitant 
charges.  Indeed,  the  railroads  proved  to  be  of  such  great 
assistance  to  the  development  of  the  country  that  the  chief 
concern  of  the  public,  particularly  in  the  Western  States, 
was  to  secure  as  many  lines  as  possible.  There  was  little 
disposition  to  impose  restrictions  on  a  company  proposing 
to  build  a  new  road.  In  many  States  general  laws  were 
passed  under  which  railroad  companies  might  be  chartered 
without  securing  a  special  act  of  the  legislature.  The  public 
did  not  think  it  necessary  for  the  government  to  regulate 
the  location,  capitalization,  construction  and  operation  of 
the  roads.  Competition  and  "the  laws  of  trade,"  it  was 
thought,  would  attend  to  those  matters.  In  this  regard  the 
United  States  acted  differently  from  most  European  coun- 
tries. 

Though  the  State  governments  did  not  make  any  effort 
to  regulate  railway  charges,  beyond  including  ineffective 
maximum  rates  in  charters,  several  of  them  did,  in  the 
period  previous  to  the  Civil  War,  exercise  certain  super- 
visory powers  over  the  business  of  the  railroad  companies. 
These  powers  were  usually  exercised  through  a  commission, 
the  agency  now  almost  universally  employed  for  railway 
regulation,  though  the  commissions  of  that  time  were  quite 
different  from  the  ones  now  existing.  Briefly  stated,  the 
functions  of  the  early  commissions  were  the  appraisement 
of  the  value  of  private  property  taken  by  the  railroads,  the 
apportionment  of  receipts  and  expenditures  of  interstate 
roads  among  the  States  concerned,  the  inspection  of  roads 
and  the  enforcement  of  laws  to  prevent  accidents,  the  inves- 
tigation of  the  affairs  of  railway  corporations  to  determine 
whether  they  were  violating  their  charters  or  the  State 
laws,  or  whether  they  were  giving  the  citizens  or  corpora- 
tions of  other  States  greater  advantages  than  they  were  giv- 
ing those  of  the  State  which  had  incorporated  the  compa- 


426  RAILROAD  TRANSPORTATION 

nies,  and  the  collection  of  statistical  data  concerning  the 
financial  affairs  and  business  operations  of  the  railroad  cor- 
porations. 

The  first  of  the  early  railroad  commissions  were  created 
in  New  England,  where  they  were  appointed  for  two  pur- 
poses:  (i)  to  appraise  the  value  of  the  land  which  railroad 
companies  might  need  to  take  from  private  persons  with 
whom  satisfactory  terms  of  purchase  could  not  be  made; 
(2)  to  apportion  the  receipts  and  expenditures  of  an  inter- 
state road  among  the  States  in  which  the  road  conducted 
its  business.  The  States  considered  this  apportionment 
necessary,  because  they  had  placed  in  the  railway  charters 
limitations  on  the  charges  and  profits  of  the  companies. 
Some  of  the  commissions  established  for  these  two  purposes 
were  given  other  duties  of  a  supervisory  character.  To 
quote  the  Rhode  Island  law  of  1839,  the  commissioners  were 
to  examine  and  report  on  "the  state,  condition,  and  proceed- 
ings of  the  several  railroad  companies,  so  far  as  the  public 
interest  may  require  the  same."  The  commissioners  were 
to  inform  the  legislature  regarding  the  financial  affairs  of 
the  companies,  and,  as  the  New  Hampshire  law  of  1844 
provided,  to  report  whether  the  companies  were  observing 
the  provisions  of  their  charters  and  of  the  laws  of  the 
State.  Probably  the  strongest  motive  of  the  States  in  the 
early  supervision  of  railroads  was  the  desire  to  lessen  the 
number  of  accidents.  For  this  reason  mainly  a  commis- 
sion was  established  by  Connecticut  in  1853,  by  Vermont  in 
1855,  and  by  Maine  in  1858. 

The  attempts  of  the  States  to  supervise  railways,  whether 
by  commissions  or  by  other  executive  officers  of  the  govern- 
ment, suggested  the  need  of  systematic  statistics  regarding 
the  financial  and  traffic  operations  of  the  companies.  In 
several  States — for  example,  Ohio,  New  York  and  New 
Jersey — the  officers  appointed  to  collect  these  statistics  were 
forerunners  of  the  railway  commissions,    They  performed 


STATE  REGULATION  OF  RAILROADS     427 

one  of  the  most  important  services  for  which  commissions 
were  subsequently  created. 

Shortly  before  1870  there  arose  a  strong  public  demand 
for  a  more  effective  regulation  of  railway  transportation, 
especially  for  the  regulation  of  railroad  rates.  The  main 
cause  of  the  demand  was  the  growing  prevalence  of  gross 
discriminations  in  rates  and  fares.  Unrestrained  competi- 
tion led  to  such  abuses  that  the  people,  both  of  the  Eastern 
and  Western  States,  passed  more  stringent  laws  to  regu- 
late the  relations  of  the  railways  with  each  other  and  with 
the  public.  In  the  Eastern  States,  where  the  principal  rail- 
way lines  now  in  that  section  had  already  been  constructed, 
and  where  the  industries  had  been  diversified  and  developed 
to  a  considerable  degree,  the  laws  enacted  were  more  con- 
servative than  were  the  laws  passed  by  the  Western  and 
Southern  States.  The  Eastern  States,  in  dealing  with  "the 
railway  problem,"  depended  on  publicity  and  the  force  of 
public  opinion  to  correct  the  abuses;  they  authorized  their 
governments  to  supervise  the  railways  first  of  all,  and  to 
regulate  by  force  only  when  absolutely  necessary.  In  the 
West  and  South,  however,  the  feeling  against  the  railroads 
was  much  more  intense ;  the  people  did  not  believe  publicity 
and  public  opinion  would  bring  about  satisfactory  relations 
between  the  carriers  and  the  public;  they  preferred  rather 
to  depend  on  publicity  and  penalties.  The  Eastern  States 
established  commissions,  with  power  to  investigate  railway 
practices  and  to  report  the  facts  to  the  legislature  and  the 
people,  and  to  suggest  what  laws  should  be  passed.  The 
Western  and  Southern  States  established  commissions  with 
power  to  issue  orders  and  to  enforce  the  orders  by  le- 
gal procedure.  The  eastern  commissions  could  supervise 
and  advise,  the  others  could  supervise  and  regulate;  the 
former  had  advisory  powers,  the  latter  mandatory  au- 
thority. 

The  Massachusetts  commission,  established  in  1869,  may 


428  RAILROAD  TRANSPORTATION 

be  taken  as  a  type  of  the  supervisory-advisory  class.  The 
commission  consisted  of  three  men  appointed  by  the  Gover- 
nor with  the  consent  of  the  Council.  The  term  of  office 
was  three  years,  one  person  being  appointed  each  year.  The 
board  had  power : 

i.  To  examine  railway  corporations  and  determine 
whether  they  were  fulfilling  the  terms  of  their  charters  and 
obeying  the  laws. 

2.  To  supervise  the  railroads  "with  reference  to  the 
security  and  accommodation  of  the  public." 

3.  To  investigate  complaints  against  the  railroads.  It 
had  the  power  to  summon  witnesses  and  examine  them  un- 
der oath.  It  could  also  institute  investigations  on  its  own 
motion. 

4.  To  prescribe  a  uniform  system  of  keeping  railway 
accounts,  and  to  inspect  the  books  and  accounts  of  railway 
corporations. 

5.  To  act  as  a  board  of  arbitration  for  the  settle- 
ment of  disputes  between  railroad  corporations  and  the 
public. 

6.  To  make  ?n  annual  report  to  the  legislature  discussing 
"the  actual  working  of  the  system  of  railroad  transportation 
in  its  bearing  upon  the  business  and  prosperity  of  the 
Commonwealth,"  and  suggesting  such  legislation  as  might 
seem  appropriate. 

From  this  list  of  the  chief  powers  possessed  by  the  Massa- 
chusetts commission  it  will  be  seen  that  the  enforcement  of 
the  decisions  of  the  commission  was  left  to  public  opinion. 
In  the  case  of  Massachusetts  the  commission  enjoyed  the 
confidence  of  the  public,  and  was  very  successful  in  regu- 
lating the  railways.  When  legislation  was  needed,  the 
recommendations  of  the  commission  were  usually  accepted. 
Several  commissions  of  this  type  were  established  in  other 
States,  but  they  have  now  all  been  replaced  by  mandatory 
or  "strong"  commissions.     The  commission  of  Massachu- 


STATE  REGULATION  OF  RAILROADS     429 

setts  was  one  of  the  last  of  the  advisory  commissions  to 
pass  out  of  existence,  it  being  superseded  in  1913  by  a 
body  with  mandatory  authority. 

The  problem  of  railway  regulation  in  the  West  differed 
much  from  the  problem  in  the  Eastern  States.  In  the 
West  the  construction  of  railroads  began  later,  and  the 
public  was  concerned  mainly  with  securing  the  needed 
lines.  The  public  aid,  State  and  local,  though  large  in 
the  East,  was  much  greater  in  the  West.  There  was  little 
thought  given  to  railway  regulation  in  the  West  until  after 
the  Civil  War;  indeed,  such  was  the  confidence  in  the 
efficacy  of  competition  to  regulate  the  business  of  railway 
transportation  that  the  necessity  for  State  regulation  was 
not  realized. 

Public  opinion  in  the  Western  States  underwent  a  very 
sudden  and  complete  change  during  the  five  years  suc- 
ceeding 1867.  The  fierce  competition  of  recently  formed 
through  lines  connecting  western  cities  with  Chicago,  and 
of  the  trunk  lines  joining  Chicago  with  the  Atlantic  sea- 
board, led  to  personal  discrimination  and  to  a  great  re- 
duction in  through  competitive  rates.  Rates  at  local  non- 
competitive points  being  left  unchanged  or  changed  but 
slightly,  the  result  was  excessive  discriminations  between 
places.  The  farmers  and  people  of  the  smaller  towns,  who 
had  aided  the  railway  corporations  liberally  in  constructing 
the  roads,  were  paying  high  rates,  while  the  shippers  in  the 
large  cities  were  favored  with  low  rates.  At  the  same 
time  eastern  capitalists  were  constructing  new  lines  of  rail- 
roads in  the  West  with  great  rapidity.  These  railroad 
corporations,  composed  largely  of  non-resident  men,  seemed 
to  be  prospering  greatly.  Prices  meanwhile  were  falling 
from  the  high  level  which  they  had  been  given  by  the 
inflation  of  the  currency  during  the  war.  Falling  prices  for 
agricultural  products,  due  to  the  contraction  of  the  currency 
and  to  the  great  increase  in  the  area  devoted  to  farming, 


.430  RAILROAD  TRANSPORTATION 

were  bringing  down  the  farmer's  profits  and  making  him 
discontented. 

The  farmers  and  townsmen  of  the  Western  States  saw  no 
reason  why  the  companies  should  not  give  local  points 
as  low  rates  as  had  been  accorded  to  the  large  cities.  They 
did  not  suppose  the  railroads  were  doing  the  competitive 
business  merely  for  pleasure,  or  that  the  roads  were 
carrying  any  traffic  at  a  loss.  The  railroads  must  be  making 
money  on  their  competitive  business,  and  ought  to  lower 
their  local  rates  to  the  level  of  competitive  charges.  This 
reasoning  was  not  altogether  sound,  and  the  people  of  the 
West  did  not  fully  understand  the  railway  problem;  but 
they  knew  that  the  railroads  were  unjustly  discriminating, 
and  they  were  convinced  that  local  rates  were  dispropor- 
tionately high.  They  believed  also  that  the  railroad  cor- 
porations were  public  carriers,  performing  a  service  of  a 
public  nature,  the  charges  for  which  could  be  regulated 
by  public  authority.  The  companies,  however,  at  first 
ignored  the  public,  and  then  defied  them.  The  public  ac- 
cepted the  gage  of  battle,  the  railroad  companies  were 
defeated,  and  the  so-called  "granger  laws"  and  "granger 
decisions"  were  the  result. 

The  laws  which  the  Western  States  enacted  between 
1870  and  1880  for  the  regulation  of  railways,  including 
the  laws  establishing  State  railroad  commissions,  are  com- 
monly called  granger  legislation,  because  of  the  support 
which  the  granger  societies  gave  to  the  struggle  to  secure 
the  legislation.  The  name  is  not  altogether  accurate,  be- 
cause the  agitation  for  State  control  of  railways  in  the 
West  became  strong  before  the  Patrons  of  Husbandry 
or  the  grangers  had  been  fully  organized.  In  the  be- 
ginning the  agitation  for  State  control  was  due  to  a  far- 
mers' movement  to  which  the  people  of  the  towns  gave 
their  support.  Later — that  is,  from  1872  on — the  gran- 
ger societies  actively  aided  the  movement,  and  became  its 


STATE  REGULATION  OF  RAILROADS     431 

strongest  supporter.  Hence  the  name  granger  legisla- 
tion. 

The  State  regulation  of  railroads  in  the  West  was  first 
undertaken  by  Illinois,  and  the  Illinois  commission  may 
be  taken  as  a  type  of  the  commission  with  power,  the  super- 
visory-mandatory railroad  commission.  In  1870  the  people 
of  Illinois  revised  their  constitution,  and  included  in  the 
new  document  a  clause  enjoining  upon  the  legislature  the 
enactment  of  laws  for  the  regulation  of  railways.  To  carry 
out  this  provision  of  the  constitution,  a  law  was  approved 
April  7,  1871,  prescribing  maximum  rates  and  fares,  and 
prohibiting  discriminations.  Another  act,  approved  a  few 
days  later,  established  a  railroad  and  warehouse  commis- 
sion to  supervise  the  railways  and  to  assist  in  enforcing 
the  laws  for  their  regulation.  The  law  approved  April 
7,  1 87 1,  was  displaced  in  1873  by  a  law  making  it  the  duty 
of  the  commission  to  prescribe  "a  schedule  of  reasonable 
maximum  rates  of  charges  for  the  transportation  of  pas- 
sengers and  freight." 

The  Illinois  Railroad  and  Warehouse  Commission,  like 
the  one  for  Massachusetts,  had  power  to  investigate  the 
railroads  as  to  their  physical  condition  and  management, 
and  to  prescribe  the  form  of  report  to  be  made  by  the  com- 
panies. In  addition  to  possessing  most  of  the  powers 
held  by  the  Massachusetts  commission,  the  Illinois  board 
could  prescribe  schedules  of  maximum  charges,  and  could 
prosecute  the  railway  companies  either  to  compel  them  to 
obey  the  commission's  decisions  or  to  force  them  to  obey 
the  laws  regulating  railway  transportation.  Furthermore, 
if  an  Illinois  company  charged  a  rate  higher  than  that 
which  the  commission  declared  reasonable,  the  company 
could  be  compelled  to  prove  that  the  rate  which  it  had 
charged  was  reasonable.  The  State  was  right  until  proved 
wrong;  the  burden  of  proof  was  thrown  upon  the  carrier. 
This  was  an  important  modification  of  the  common  law, 


432  RAILROAD  TRANSPORTATION 

which  compelled  the  State  to  prove  its  case  when  it  ques- 
tioned the  reasonableness  of  a  rate  charged  by  a  common 
carrier. 

Other  States  in  the  West  and  South  passed  laws  similar  to 
the  Illinois  statutes  just  described.  In  1874  Iowa  and 
Wisconsin  passed  laws  prescribing  maximum  railway 
charges.  The  same  year  Minnesota  established  a  commis- 
sion endowed  with  power  to  fix  rate  schedules.  In  1879 
Georgia  instituted  a  commission  with  power  to  prescribe 
rates.  In  1879  California  did  what  no  other  State  had 
done  by  adopting  a  constitution  in  which  the  state  legisla- 
ture was  required  to  establish  a  railroad  commission  with 
power  to  fix  "rates  of  charges  for  the  transportation  of 
passengers  and  freight  by  railroad  or  other  transportation 
companies." 

The  enforcement  of  the  "granger  laws"  was  vigorously 
opposed  by  the  railroad  companies,  who  maintained  that 
their  business  was  a  private  one,  and  that  the  State  had 
no  power  to  fix  the  rates  which  they  should  charge  for 
their  services.  The  railroads  claimed,  moreover,  that  the 
States  which  had  granted  a  charter  to  a  company  giving 
it  power  to  make  reasonable  charges  for  its  services  could 
not  prescribe  the  rates  to  be  charged  by  the  company 
without  the  violation  of  a  contract.  It  had  been  decided 
by  the  United  States  Supreme  Court  in  1819,  in  the  famous 
Dartmouth  College  case,  that  in  granting  a  charter  a  State 
entered  into  a  contract  relation.  The  courts,  however,  did 
not  uphold  the  contention  of  the  railway  companies,  and 
in  1877  the  Supreme  Court  of  the  United  States,  in  the 
noted  granger  cases,  declared  valid  the  State  legislation 
fixing  railway  charges.  The  railway  corporations  were 
compelled  to  recognize  the  public  nature  of  the  service  they 
were  performing,  and  to  acknowledge  the  authority  of  the 
States  to  regulate  the  railway  business,  even  to  fixing 
the  charges  for  the  same. 


STATE  REGULATION  OF  RAILROADS     433 

The  Supreme  Court  gave  the  States,  in  1877,  greater  au- 
thority over  railroads  than  they  now  possess.  The  granger 
laws  fixed  rates  on  all  the  traffic  by  rail  within  the  State. 
Though  commodities  might  be  shipped  beyond  the  State 
or  enter  the  State  from  outside,  and  thus  become  interstate 
commerce,  the  railroads  must  carry  the  goods  while  within 
the  State  at  such  rates  as  the  State  had  fixed.  Although 
the  Constitution  of  the  United  States  vests  in  Congress 
the  power  to  regulate  commerce  among  the  States,  the 
Supreme  Court  held  in  the  case  of  Peik  v.  Chicago  and 
Northwestern  Railway  Company  that  "until  Congress  acts 
in  reference  to  the  relations  of  this  company  to  interstate 
commerce,  it  is  certainly  within  the  power  of  Wisconsin 
to  regulate  its  fares,  etc.,  so  far  as  they  are  of  domestic 
concern."  The  language  of  the  court  apparently  gave 
the  States  power  to  regulate  not  only  intrastate  but  also 
interstate  traffic  until  Congress  should  decide  to  exercise 
the  power  over  interstate  commerce  conferred  upon  it  by 
the  Constitution.  The  States  so  interpreted  their  powers 
until  1886,  when  the  court  in  the  case  of  the  Wabash, 
St.  Louis  and  Pacific  Railway  Company  v.  Illinois  reviewed 
its  language  and  decided  that  the  States  had  no  right  to 
regulate  interstate  commerce,  but  must  confine  themselves 
to  intrastate  traffic.  This  Wabash  decision  greatly  limited 
the  authority  of  the  States  over  railroads,  and  was  one 
of  the  influences  that  led  Congress  to  pass  the  Interstate 
Commerce  Act  in  1887. 

The  early  granger  laws  were  the  first  efforts  of  a  thor- 
oughly aroused  public  to  apply  vigorous  remedies  to  a 
severe  social  malady.  The  laws  were  strenuously  opposed 
by  the  railroad  companies,  and  when  the  panic  occurred 
in  1873,  during  which  many  of  the  railroads  were  thrown 
into  bankruptcy,  it  was  claimed  that  their  financial  diffi- 
culties were  due  in  a  large  measure  to  the  stringent  legisla- 
tion which  had  been  enacted.     Though  it  is  possible  that 


434  RAILROAD  TRANSPORTATION 

many  of  the  States  had  proceeded  too  rapidly  and  too  far 
in  their  attempts  at  regulation,  it  was  not  true  that  the 
difficulties  of  the  railroads  at  that  time  were  caused  by  the 
State  laws.  However,  the  opposition  that  was  aroused  and 
the  serious  plight  of  many  of  the  railroad  companies  brought 
about  the  repeal  or  modification  of  much  of  the  recently 
enacted  legislation.  Minnesota  repealed  her  law  of  1874 
the  year  after  its  passage,  and  put  in  its  place  a  law  pro- 
viding for  only  one  commissioner  with  little  more  than 
supervisory  powers.  In  1878  Iowa  repealed  her  law  of  1874, 
by  which  a  schedule  of  rates  had  been  fixed,  and  established 
a  commission  without  the  rate  making  function.  The  so- 
called  Potter  law  of  Wisconsin,  Avhich  was  the  most  strin- 
gent of  the  granger  statutes,  was  repealed  after  being  in 
force  for  two  years,  1874-1876,  and  regulation  by  com- 
mission was  for  the  time  being  entirely  abandoned  in  that 
State.  The  Illinois  Railroad  and  Warehouse  Commission 
was  one  of  the  few  with  mandatory  powers  which  was  not 
discarded. 

It  took  but  a  few  years,  however,  to  show  that  the  "rail- 
way problem"  called  for  effective  regulation,  and  the  pen- 
dulum once  again  swung  toward  the  enactment  of  rate  legis- 
lation and  the  establishment  of  commissions  with  mandatory 
powers.  Minnesota  again  revised  her  statute  in  1885  ;  Iowa, 
after  a  ten  years'  experience  with  her  advisory  commission, 
established  a  commission  with  rate  making  powers  in  1888, 
and  several  other  States  took  similar  action.  During  the 
business  depression  that  began  in  1893  there  was  a  lull 
in  State  legislation,  but  beginning  about  1897  a  strong 
tendency  set  in  toward  the  creation  of  State  commissions 
having  mandatory  powers  over  railroads.  Even  those 
States  which  had  successful  advisory  commissions  have 
replaced  them  with  commissions  of  the  strong  type. 

One  important  feature  of  the  legislation  that  has  been 
passed  in  recent  years  has  been  to  place  under  the  juris- 


STATE  REGULATION  OF  RAILROADS     435 

diction  of  the  commissions  not  only  railroad  companies  but 
many  other  public  utility  corporations,  such  as  street  rail- 
way, gas,  electric,  water,  warehouse,  telegraph,  and  tele- 
phone companies,  in  fact  all  companies  which  are  engaged 
in  supplying  utilities  of  a  public  nature.  Many  of  the 
mandatory  railroad  commissions  of  former  years  have  been 
replaced  by  commissions  having  authority  over  several 
kinds  of  public  utilities.  The  Illinois  Railroad  and  Ware- 
house Commission,  one  of  the  oldest  and  most  successful 
of  the  railroad  commissions  of  the  strong  type,  was  super- 
seded in  1913  by  a  State  Public  Utilities  Commission.  In 
some  States  the  authority  of  the  commissions  extends  to  cor- 
porations other  than  public  utility  companies.  "Corporation 
commissions"  are  to  be  found  in  Arizona,  New  Mexico, 
North  Carolina,  Oklahoma,  and  Virginia.  Of  the  forty- 
eight  States,  forty-seven  now  have  commissions  with  pow- 
ers to  regulate  railroads  and,  in  some  cases,  other  public 
utilities  and  corporations.  The  District  of  Columbia  now 
has  a  Public  Utilities  Commission  with  large  powers  of 
regulation  and  control.  In  eight  States  the  commissions 
have  been  established  by  provisions  of  the  constitution,  and 
their  powers  amplified  and  defined  by  statute ;  in  the  other 
States  the  commissions  have  been  created  by  legislative 
enactment.  Delaware  is  the  only  State  having  no  commis- 
sion. The  following  table  shows  the  types  of  commissions 
of  the  various  States : 


Public 

utilities 

or    public    service    commiss 

I 

Alabama 

7 

Indiana 

2 

California1 

8 

Maine 

3 

Colorado 

9 

Maryland 

4 

Connecticut 

10 

Massachusetts 

5 

Idaho 

11 

Michigan 

6 

Illinois 

12 

Missouri 

1  See  first  note  on  p.  436. 


436  RAILROAD  TRANSPORTATION 


13 

Nevada 

21 

Tennessee 

14 

New    Hampshire 

22 

Utah 

15 

New  Jersey 

23 

Vermont 

16 

New  York 

24 

Washington 

17 

Ohio 

25 

West   Virginia 

18 

Oregon 

26 

Wisconsin  * 

19 

Pennsylvania 

27 

Wyoming 

20 

Rhode  Island 

Railroad   commissions 

I 

Arkansas 

8 

Mississippi 

2 

Florida 

9 

Montana 

3 

Georgia 

10 

Nebraska 

4 

Iowa 

11 

North  Dakota 

5 

Kentucky 

12 

South    Carolin 

6 

Louisiana 

13 

South   Dakota 

7 

Minnesota 

14 

Texas 

Corpor 

ition 

commissions 

1 

Arizona 

4 

New  Mexico 

2 

North    Carolina 

5 

Virginia 

3 

Oklahoma 

Court  of 

Industrial 

Relations 

1 

Kansas 

The  powers  of  the  different  commissions  vary.  Some 
of  the  commissions  have  virtually  complete  control  over 
the  business  operations  of  all  utility  companies  operating 
within  their  respective  States,2  including  the  power  to 
revise  rates  either  upon  complaint  or  the  initiative  of  the 
commission,  to  suspend  changes  in  rates  pending  investi- 
gation, to  correct  discriminations,  to  regulate  services,  to 
regulate  the  issue  of  securities,  to  grant  or  withhold  fran- 
chises and  permission  to  construct  new  facilities,  to  regulate 

1  Called  railroad  commission,  but  has  jurisdiction  over  other  pub- 
lic utilities. 

'Arizona,  California,  Connecticut,  Illinois,  Indiana,  Maryland, 
Massachusetts,  Missouri,  New  Hampshire,  New  Jersey,  New  York, 
Ohio,  Rhode  Island.  Vermont,  and  Wisconsin. 


STATE  REGULATION  OF  RAILROADS     437 

t 

accounting  practices,  and  to  require  detailed  operating  and 
statistical  reports.  Other  commissions  have  full  jurisdic- 
tion over  public  utilities  except  with  regard  to  the  regula- 
tion of  capitalization ; *  others  have  limited  jurisdiction 
over  railroads  and  certain  specified  utility  corporations  such 
as  street  car,  telegraph,  and  telephone  companies.  A  state- 
ment of  the  organization  and  powers  of  some  of  the  typical 
commissions  indicates  the  wide  difference  existing  between 
the  commissions  of  different  States. 

The  Public  Utilities  Commission  of  Illinois,  which  is  one 
of  those  having  the  broadest  powers,  is  composed  of  five 
members  appointed  by  the  Governor  and  confirmed  by  the 
senate.  Each  commissioner  receives  an  annual  salary  of 
$10,000  and  holds  office  for  six  years.  The  general  powers 
of  the  commission  are  stated  in  the  law  as  follows : 

The  Commission  shall  have  general  supervision  of  all  public 
utilities,  shall  inquire  into  the  management  of  the  business 
thereof  and  shall  keep  itself  informed  as  to  the  manner  and 
method  in  which  the  business  is  conducted.  It  shall  examine 
such  public  utilities  and  keep  informed  as  to  their  general  con- 
ditions, their  franchises,  capitalization,  rates  and  other  charges, 
and  the  manner  in  which  their  plants,  equipments  and  other 
property  owned,  leased,  controlled  or  operated  are  managed, 
conducted  and  operated,  not  only  with  respect  to  the  adequacy, 
security  and  accommodation  afforded  by  their  service  but  also 
with  respect  to  their  compliance  with  the  provisions  of  this 
Act  and  any  other  law,  with  the  orders  of  the  Commission  and 
with   the    charter    and    franchise    requirements. 

The  act  provides  that  the  rates  of  public  utility  com- 
panies must  be  just  and  reasonable,  that  a  company  may 
change  its  rates  and  rules  of  service  only  after  30  days' 
notice  to  the  commission  and  may  increase  rates  only  after 

1  Idaho,  Montana,  Nevada,  Oklahoma,  Oregon,  Pennsylvania, 
Washington,  Wyoming. 


438  RAILROAD  TRANSPORTATION 

receiving  an  order  from  the  commission  certifying  that 
the  increase  is  justified,  that  public  utility  companies  shall 
not  issue  stock  and  bonds  without  the  consent  and  approval 
of  the  commission,  that  they  shall  keep  accounts  and  make 
annual  reports  in  accordance  with  rules  prescribed  by  the 
commission,  that  a  public  utility  company  shall  not  begin  the 
construction  of  a  new  plant  without  receiving  a  certificate 
of  convenience  from  the  commission,  and  shall  not  purchase 
the  securities  of  another  utility  company  or  enter  into  a 
contract  of  purchase,  merger  or  lease  with  another  utility 
company  without  having  been  authorized  to  do  so  by  the 
commission.  The  commission  is  empowered  to  revise  rates 
upon  complaint  or  upon  its  own  initiative,  to  suspend  rate 
schedules  pending  investigation,  to  establish  demurrage, 
reciprocal  demurrage,  storage  and  switching  rules  and 
charges,  to  require  proper  facilities  for  service,  to  fix  stand- 
ards of  service,  to  order  the  installation  of  safety  appliances, 
to  make  a  valuation  of  the  property  of  a  utility  company, 
to  inspect  books  and  accounts,  and  to  issue  orders  for  the 
payment  of  damages  in  reparation  for  overcharges.  The 
orders  of  the  commission  are  binding  unless  set  aside  by 
judicial  proceedings. 

New  York  has  a  law,  similar  to  that  of  Illinois,  providing 
for  two  commissions,  one  of  which  supervises  the  rapid 
transit  system  of  the  City  of  New  York  and  the  other  the 
remaining  utilities  of  the  State.  The  laws  of  New  Jersey, 
Wisconsin  and  Massachusetts  give  the  commissions  of  those 
States  powers  similar  to  those  held  by  the  commission  of 
Illinois.  The  Public  Service  Commission  of  Pennsylvania 
also  has  similar  powers  with  the  exception  that  it  can- 
not directly  regulate  the  issue  of  stocks  and  bonds  or  sus- 
pend rates.  The  Court  of  Industrial  Relations  of  Kansas 
has  almost  complete  power  of  supervision  of  the  rates  and 
services  of  railroads,  and  limited  authority  over  telegraph 
and  telephone  companies  and  those  heat,  light,  water  and 


STATE  REGULATION"  OF  RAILROADS     439 

power  companies  which  are  not  owned  by  municipalities  nor 
operated  wholly  or  principally  for  the  benefit  of  a  city. 

The  Railroad  Commission  of  Florida  is  made  up  of 
three  members  who  are  elected  by  popular  vote  and  hold 
office  for  four  years.  This  commission  has  mandatory 
authority  with  regard  to  the  rates  and  services  of  rail- 
roads, boat  lines  and  telegraph  and  telephone  companies 
doing  business  within  the  State,  but  municipal  utilities  and 
street  railways  do  not  come  within  its  jurisdiction.  Among 
other  States  having  commissions  similar  to  that  of  Florida 
are  Kentucky,  North  Dakota,  and  Arkansas. 

The  Corporation  Commission  of  New  Mexico,  which  is 
provided  for  in  the  constitution  of  that  State,  consists 
of  three  members,  elected  by  popular  vote  and  holding  office 
for  six  years.  The  commission  issues  charters  for  all  domes- 
tic corporations,  licenses  foreign  corporations  to  do  business 
within  the  State,  and  regulates  the  rates  and  services  of 
common  carriers  and  telegraph  and  telephone  companies. 
The  Corporation  Commission  of  Virginia  is  similar  to  that 
of  New  Mexico,  while  that  of  Arizona  has  much  broader 
powers,  which  apply  not  only  to  railroads  but  to  all  public 
service  corporations  operating  in  the  State. 

In  addition  to  establishing  commissions  for  the  purpose  of 
regulating  railroads  and  other  public  utilities,  many  States 
enact  statutes  limiting  and  defining  the  powers  and  duties 
of  railroads  and  other  utility  corporations.  A  favorite 
method  of  regulating  railway  charges  has  been  the  enact- 
ment of  laws  fixing  maximum  rates  and  fares.  Several 
States  have  enacted  "two-cent  fare  laws,"  and  laws  estab- 
lishing freight  classifications  and  maximum  freight  rates. 
Car-service  and  demurrage  laws,  and  laws  requiring  the 
elimination  of  grade  crossings,  regulating  the  use  of  private 
sidings,  regulating  train  service  and  establishment  of  termi- 
nal facilities  are  also  common.  The  operation  of  railroads 
in  some  States  is  regulated  by  "full-crew  laws,"  and  statutes 


440  RAILROAD  TRANSPORTATION 

relating  to  head-lights,  safety  appliances,  speed  of  trains, 
and  the  transportation  of  various  kinds  of  traffic,  such  as 
live  stock,  perishable  products  and  explosives.  Discrimina- 
tion in  charges  and  services,  rebates,  free  passes,  and  ticket 
scalping  are  generally  prohibited,  and  the  antitrust  laws  en- 
acted by  numerous  States  are  applicable  to  railway  cor- 
porations. Capitalization  of  railway  corporations  is  regu- 
lated by  laws  placing  limits  upon  the  amount  and  kind  of 
securities  that  may  be  issued  and  the  prices  at  which  they 
may  be  sold.  In  many  cases  these  various  regulations 
are  included  in  the  statutes  creating  railroad  or  public  utili- 
ties commissions,  but  often  they  are  embodied  in  separate 
enactments. 

For  several  years  there  has  been  a  growing  sentiment 
that  the  States  have  gone  too  far  in  their  efforts  to  regulate 
public  utilities.  There  has  been  much  adverse  criticism 
not  only  of  the  laws  affecting  railroads  but  of  the  legisla- 
tion affecting  other  public  service  companies.  The  criti- 
cism has  been  directed  both  against  the  numerous  statutes 
enacted  by  State  legislatures  and  against  the  commissions 
by  which  the  statutes  have  been  administered.  Unfortu- 
nately, the  governors  of  several  States,  in  making  their 
appointments  to  public  service  commissions,  have  selected 
men,  not  because  of  their  ability  or  fitness  for  their  position, 
but  solely  for  political  reasons.  The  large  salary  paid  to 
commissioners  in  some  States,  which  was  intended  to  in- 
duce men  of  ability  to  accept  places  on  the  commissions,  has 
served  rather  to  make  the  offices  attractive  to  political 
place-hunters,  whose  ability  only  too  often  varies  in  inverse 
ratio  to  the  influence  they  are  able  to  exert  to  secure  ap- 
pointment. The  efficiency  of  a  commission  depends  to  a 
large  extent  on  the  character  of  its  members  and  upon 
continuity  of  service.  When  appointments  are  made 
for  political  reasons  the  personnel  of  a  commission 
is    likely    to    change    frequently,    and,    however    good    the 


STATE  REGULATION  OF  RAILROADS     44 1 

utilities  law,  it  loses  its  effectiveness  through  poor  ad- 
ministration. 

The  chief  objections  to  State  regulation  of  municipal 
utilities  are  made  by  the  advocates  of  municipal  home  rule, 
who  think  that  the  cities  themselves  should  control  and 
regulate  the  services  and  rates  of  their  utilities.  As  to  the 
present  State  laws  for  the  regulation  of  railroads  there  are 
three  general  criticisms:  (i)  Many  of  the  recent  laws  are 
ill-advised  and  do  not  serve  the  best  interests  of  the  State 
or  of  the  country  as  a  whole;  (2)  the  large  number  and  ex- 
treme diversity  of  the  laws  create  a  complex  and  confusing 
situation  which  involves  both  the  public  and  the  railroads 
in  needless  difficulty;  (3)  the  State  regulations  often  con- 
flict with  and  nullify  action  taken  by  the  Federal  Govern- 
ment to  control  and  regulate  interstate  trade. 

Laws  which  impose  upon  railroads  arbitrary  and  uniform 
regulations  with  respect  to  rates  and  services  may  often  be 
unwise.  A  two-cent  passenger  fare  law  of  state-wide  ap- 
plication may  be  unjust  to  roads  operating  in  districts 
where  topographical  conditions  and  the  density  of  traffic 
are  such  as  to  cause  a  relatively  high  cost  of  operation  of 
passenger  trains;  "full-crew"  laws  passed  by  some  legisla- 
tures have  been  shown  to  result  in  greatly  increased  expense 
to  the  railroads  without  either  an  additional  measure  of 
safety  to  the  public  or  any  increase  in  operating  efficiency. 
A  few  States  have  arbitrarily  reduced  rates  merely  for  the 
purpose  of  creating  a  discrimination  in  local  markets  against 
the  shippers  and  traders  of  other  States ;  at  least  three  States 
have  statutes  making  it  illegal  for  a  railway  corporation 
possessing  repair  shops  in  the  State  to  send  any  of  its 
equipment,  which  may  be  repaired  there,  out  of  the  State 
for  repairs ;  in  some  instances  railroad  companies  have 
spent  large  sums  of  money  in  improving  their  roadway  and 
purchasing  powerful  locomotives  in  order  to  handle  traffic  in 
large  units,  only  to  be  confronted  with  a  statute  limiting 


442  RAILROAD  TRANSPORTATION 

the  number  of  cars  which  may  be  included  in  a  single  train. 

The  large  number  of  State  laws  and  the  entire  lack  of 
uniformity  in  systems  and  methods  of  regulation  consti- 
tute an  even  greater  source  of  difficulty  than  the  character 
of  the  legislation.  Diverse  laws  with  regard  to  train  crews, 
train  speed,  safety  appliances  and  signal  apparatus  often 
cause  needless  expense.  The  control  and  supervision  of 
capitalization  by  a  large  number  of  authorities,  each  gov- 
erned by  a  different  law  and  having  a  different  plan  of 
procedure,  have  made  much  more  difficult  the  problems 
of  securing  funds  for  improvements,  of  consolidating  con- 
necting railroads,  and  of  reorganizing  bankrupt  roads. 
At  the  same  time  the  chief  objects  of  the  regulation  of 
capitalization  are  not  always  accomplished.  The  law  of 
one  State  may  be  in  a  measure  rendered  ineffective  by 
the  lack  of  legislation  or  by  a  different  kind  of  law  in 
another  State.  The  manipulation  of  the  finances  of  the 
New  York,  New  Haven  and  Hartford,  the  Chicago  and 
Rock  Island,  and  the  St.  Louis  and  San  Francisco  roads 
took  place  regardless  of  the  fact  that  many  of  the  States 
in  which  these  lines  operated  had  presumably  excellent 
laws  for  the  regulation  of  the  financial  affairs  of  railway 
corporations. 

The  conflict  between  State  and  Federal  regulation  of 
railroad  rates  has  been  the  chief  problem  growing  out  of 
the  system  of  State  regulation.  Intrastate  and  interstate 
traffic  are  so  closely  interwoven  that  a  disturbance  of  the 
rates  on  one  is  bound  to  affect  the  rates  on  the  other,  and 
it  is  consequently  impossible  to  secure  a  satisfactory  system 
of  regulation  as  long  as  there  is  a  complete  division  of 
authority.  Whenever  a  State  endeavors  by  reducing  rates 
to  secure  commercial  advantages  in  local  markets  for  its 
traders,  the  force  of  industrial  competition  tends  to  compel 
a  corresponding  reduction  in  interstate  rates,  and  the  State 
in  effect  accomplishes   the  regulation   of   interstate  trade, 


STATE  REGULATION  OF  RAILROADS     443 

a  function  which  belongs  solely  to  Congress.  In  the  Shreve- 
port  Rate  case  (234  U.  S.  342)  the  Supreme  Court  held 
that  the  Interstate  Commerce  Commission  had  power  to 
overrule  an  order  of  a  State  railroad  commission  estab- 
lishing intrastate  rates  which  resulted  in  a  discrimination 
against  interstate  trade  carried  on  at  rates  held  by  the 
Interstate  Commerce  Commission  to  be  reasonable.  In  this 
decision  the  Court  indicated  that  Congress  had  the  power 
to  regulate  intrastate  rates  to  the  extent  of  removing  any 
discrimination  imposed  upon  interstate  commerce  by  State 
authority.  Since  the  Interstate  Commerce  Commission  did 
not  have  sufficiently  explicit  powers,  before  1920,  to  enable 
it  to  establish  intrastate  rates  which,  in  the  Commission's 
judgment,  would  remove  any  discrimination  which  might 
exist,  it  was  necessary,  if  a  harmonious  system  of  rate  reg- 
ulation was  to  be  secured,  for  Congress  to  enlarge  the  Com- 
mission's authority.  This  Congress  proceeded  to  do  in 
enacting  the  Transportation  Act  of  February  28,  1920. 

The  Interstate  Commerce  Act,  as  amended  by  the  Trans- 
portation Act,  provides  that  the  Interstate  Commerce  Com- 
mission shall  have  the  power  to  investigate,  either  upon  its 
own  initiative  or  upon  complaint,  "any  rate,  fare,  charge, 
classification,  regulation  or  practice,  made  or  imposed  by 
the  authority  of  any  State."  It  shall  cause  the  State  or 
States  interested  to  be  notified  of  any  such  investigation, 
and  may  hold  joint  hearings  with  any  State  regulating 
body.     The  law  further  provides : 

Whenever  in  any  such  investigation  the  Commission,  after  full 
hearing,  finds  that  any  such  rate,  fare,  charge,  classification,  regula- 
tion or  practice  causes  any  undue  or  unreasonable  advantage,  prefer- 
ence, or  prejudice  as  between  persons  or  localities  in  intrastate  com- 
merce on  the  one  hand  and  interstate  or  foreign  commerce  on  the 
other  hand,  or  any  undue,  unreasonable,  or  unjust  discrimination 
against  interstate  or  foreign  commerce,  which  is  hereby  forbidden 
and   declared   to   be   unlawful,   it   shall    prescribe   the   rate.   fare,   or 


444  RAILROAD  TRANSPORTATION 

charge,  or  the  maximum  or  minimum,  or  maximum  and  minimum, 
thereafter  to  be  observed,  in  such  manner,  as  in  its  judgment,  will 
remove  such  advantage,  preference,  prejudice,  or  discrimination. 
Such  rates,  fares,  charges,  classifications,  regulations  and  practices 
shall  be  observed  while  in  effect  by  the  carriers  parties  to  such  pro- 
ceeding affected  thereby,  the  law  of  any  State  or  the  decision  or 
order  of  any  State  authority  to  the  contrary  notwithstanding. 

In  August,  1920,  the  Interstate  Commerce  Commission 
authorized  a  general  increase  of  interstate  freight  rates  and 
passenger  fares.  A  number  of  State  authorities,  following 
the  lead  of  the  Interstate  Commerce  Commission,  permitted 
equivalent  increases  in  intrastate  rates  and  fares.  In  some 
States  however,  the  regulating  authorities  permitted  no 
increases  whatever  or  permitted  increases  which  were  sub- 
stantially less  than  those  allowed  by  the  Interstate  Com- 
merce Commission.  The  railroad  companies  operating  in 
those  States  where  satisfactory  increases  were  not  permitted 
appealed  to  the  Interstate  Commerce  Commission  to  order 
increases  in  the  rates  on  intrastate  traffic  which  would  bring 
those  rates  into  harmony  with  interstate  rates.  Holding 
that  the  low  rates  on  intrastate  traffic  constituted  an  unlaw- 
ful discrimination  against  interstate  commerce,  the  Com- 
mission ordered  the  roads  to  advance  their  intrastate 
charges.  In  nearly  all  cases  where  the  Commission  ordered 
an  advance  of  rates  on  intrastate  business  the  State  author- 
ities appealed  to  the  Federal  courts  on  the  grounds  that  the 
action  of  the  Commission  was  a  regulation  of  intrastate 
commerce  by  Federal  authority  not  permitted  by  the  Con- 
stitution. The  lower  Federal  courts  upheld  the  Commis- 
sion and  declared  the  law  under  which  it  acted  to  be  con- 
stitutional. Appeals  were  taken  to  the  Supreme  Court, 
but  the  Court  has  not  yet  handed  down  its  decision. 
There  seems  little  reason  to  believe,  however,  that  the  Su- 
preme Court  will  not  sustain  the  validity  of  the  law.  Most 
students  of  transportation  are  of  the  opinion  that  Congress 


STATE  REGULATION  OF  RAILROADS     445 

acted  wisely  in  extending  the  power  of  the  Interstate  Com- 
merce Commission  so  that  it  could  exercise  a  large  measure 
of  control  over  the  entire  railroad  rate  structure  of  the 
country. 

The  Transportation  Act  provides  for  the  extension  of 
Federal  authority  into  other  fields  of  railroad  regulation 
formerly  occupied  exclusively  by  the  States.  The  power 
given  to  the  Interstate  Commerce  Commission  to  regulate 
the  issue  of  railroad  securities  was  discussed  in  Chapter 
VIII.  The  Act  stipulates  also  that  railroad  consolidations, 
authorized  by  the  Interstate  Commerce  Commission,  may 
be  effected  notwithstanding  the  provisions  of  State  laws. 

Should  the  extension  of  the  Federal  control  of  intrastate 
commerce  be  held  constitutional  by  the  Supreme  Court,  the 
authority  of  the  State  legislatures  over  railroads  will  be 
greatly  modified.  The  States  will  still  have  the  power  to 
regulate  intrastate  commerce,  but  not  to  the  extent  of  creat- 
ing unjust  discriminations  against  interstate  trade.  The 
States  may  correct  discriminations  in  intrastate  rates,  and 
may  require  carriers  to  establish  rates  and  regulations 
which  are  just  and  reasonable,  but  the  measure  of  reason- 
ableness will  necessarily  be  that  adopted  by  the  Interstate 
Commerce  Commission.  Federal  and  State  regulation  will 
be  brought  into  harmony,  and  the  railroad  policy  of  the 
nation  will  be  in  a  measure  unified. 

REFERENCES 

Clark,  F.  C.  "State  Railroad  Commissions  and  How  They 
May  Be  Made  Effective,"  in  Publications  American  Eco- 
nomic Association,  VI,  No.  6,   1891. 

Meyer,  B.  H.  "Railway  Regulation  under  Foreign  and  Do- 
mestic Laws,"  in  Report  of  Industrial  Commission,  IX, 
901-1004  (1901). 

Dixon,  F.  H.  State  Railroad  Control,  with  a  History  of  Its 
Development  in  Iowa  (1896). 


446  RAILROAD  TRANSPORTATION 

"Railroad  Control  in  Nebraska,"  in  Political  Science 


Quarterly,  XIII,  1898. 

Adams,  C.  F.    Railroads:  Their  Origin  and  Problems  (1878). 

Hendrick,    F.     Railway    Control    by    Commissions,    chap,    ix 
(1900). 

Buck,  S.  J.    The  Granger  Movement  (1913). 

Holmes,  Fred  L.  Regulation  of  Railroads  and  Public  Utili- 
ties in  Wisconsin   (1915). 

Sharfman,  I.  L.    Railway  Regulation,  chaps,  viii  and  ix  (1915). 

Ripley,  W.  Z.  Railroads:  Finance  and  Organisation,  chap,  ix 
(I9I5)- 

Young,  James  T.  The  New  American  Government  and  Its 
Work,  chap,  xvii  (1915). 

Huebner,  G.  G.  "Five  Years  of  Railroad  Regulation  by  the 
States,"  in  Annals  of  the  American  Academy  of  Political 
and  Social  Science,  XXXII,  July  1908. 

Thom,  Alfred  P.  "A  Right  of  the  States,"  an  address  before 
the  State  Bar  Association  of  Tennessee,  in  The  Traffic 
World,  October  9,  191 5,  pp.  761-767. 

Hines,  Walker  D.  "The  Conflict  Between  State  and  Federal 
Regulation  of  Railroads,"  in  Annals  of  the  American  Acad- 
emy of  Political  and  Social  Science,  LXIII,  January  1916. 

Report  of  New  York  Special  Committee  on  Railroads  (1879). 
[This  is  usually  styled  the  Hepburn  report.  It  is  a  most 
valuable  document.] 

Decisions  of  the  United  States  Supreme  Court :  Munn  v.  Illinois 
and  Pcik  v.  Chicago  and  Northwestern  Raihvax  Co.,  94  U. 
S.  113  et  seq.;  Wabash  v.  Illinois,  118  U.  S.  557. 

Proceedings  of  National  Association  of  Railway  Commissioners 
(annual). 

Annual  reports  of  the  State  railroad  commissions,  particularly 
of  the  Wisconsin,  Massachusetts,  New  York,  Illinois,  Iowa, 
California  and  Texas  Commissions. 

Interstate  Commerce  Commission.  "State  Regulation  of  Rail- 
ways," in  Railways  in  the  United  States  in  1902. 

State  Regulation  of  Public  Utilities.  [Annals  of  the  American 
Academy  of  Political  and  Social  Science,  LIII,  May  1914; 
this  volume  contains  papers  covering  several  phases  of  the 
subject.! 


FEDERAL  REGULATION— THE  ACT  OF  1887  44-7 

American  Year  Book,  annual  1910-1919.  [The  sections  "Public 
Services"  and  Trade,  Transportation  and  Communication" 
contain  discussions  of  current  State  legislation  for  the 
regulation  of  public  utilities.] 


CHAPTER  XXVI 

RAILROAD    REGULATION    BY    THE    FEDERAL   GOVERN- 
MENT—THE ACT  OF   1887 

Origin  of  the  demand  for  Federal  regulation,  448.  The  Windom  re- 
port of  1874,  449.  The  Cullom  report  of  1886,  450.  Early  at- 
tempts at  Federal  regulation,  450.  The  enactment  of  the  Inter- 
state Commerce  Act  of  1887,  451.  Chief  provisions  of  the  law, 
451.  The  operation  of  the  law;  the  commission's  orders  not 
binding,  456.  Power  of  the  commission  to  secure  testimony, 
458.  The  power  of  the  commission  to  regulate  rates,  459.  The 
long  and  short  haul  clause,  460.  Import  rates,  463.  Results 
accomplished  by  the  law  of  1887,  464.  Needed  changes,  464. 
References,  466. 

Shortly  after  the  States  began  actively  to  regulate  rail- 
way charges  an  agitation  was  begun  for  the  regulation  of 
railroads  by  the  Federal  Government.  The  demand  was 
pressed  most  urgently  by  the  people  of  the  middle  West, 
who  felt  keenly  the  need  for  cheap  transportation  facilities. 
After  the  close  of  the  Civil  War  the  agricultural  and  indus- 
trial development  of  the  upper  Mississippi  Valley  was  espe- 
cially rapid.  Large  quantities  of  grain  and  other  food  prod- 
ucts were  produced,  for  the  surplus  of  which  there  was  a 
market  in  the  eastern  part  of  the  United  States  and  in 
Europe,  but  the  high  cost  of  transportation  to  the  seaboard 
absorbed  nearly  all  the  profits  of  the  farmers  or  made  the 
marketing  of  produce  impossible. 

An  appeal  was  made  to  Congress  for  legislation  and  in 
1872  President  Grant  recommended  that  Congress  appoint 
a  committee  to  investigate  the  question  of  securing  "cheaper 
transportation   of    the   constantly   increasing   western   and 

448 


FEDERAL  REGULATION— THE  ACT  OF  1887    449 

southern  products  to  the  Atlantic  seaboard."  Such  a  com- 
mittee was  appointed  by  the  Senate.  Its  chairman  was 
William  Windom,  of  Minnesota,  and  the  report  made  in 
1874  contained  a  full  discussion  of  the  regulation  of  railway 
transportation.  The  Windom  report  (Sen.  Rep.  No.  307, 
43  Cong.,  1  sess.)  argued  at  length  to  prove  that  Congress 
had  the  constitutional  power  not  only  to  regulate  railroads, 
but  to  construct  and  operate  them.  The  committee  did  not 
recommend  that  Congress  fix  the  rates  to  be  charged  by 
the  companies,  but  suggested  that  Congress  should  im- 
prove and  extend  the  natural  waterways  and  should  build 
a  freight  railroad  from  the  Mississippi  River  to  the  At- 
lantic. This  recommendation  was  made  because  the  com- 
mittee thought  that  the  surest  way  to  secure  cheap  rates 
was  by  means  of  competition,  and  believing  that  the  rail- 
road companies  would  combine  and  thus  avoid  competition 
in  rate  making,  the  committee  advocated  "the  state  owner- 
ship or  control  of  one  or  more  lines  which,  being  unable 
to  enter  into  combination,  will  serve  as  regulators  of  other 
lines." 

The  recommendations  of  the  Windom  committee  over- 
estimated the  necessity  of  enforcing  competition  in  rate 
making  and  undervalued  the  ability  of  the  railroads  to 
cheapen  the  costs  of  moving  bulky  freight.  During  the 
ten  years  following  the  submission  of  the  Windom  report 
the  efficiency  of  the  railroads  as  freight  carriers  was  so 
increased  that  only  the  Great  Lakes,  the  largest  rivers, 
and  a  few  specially  well  located  canals  could  carry  even 
heavy  articles  at  costs  as  low  as  the  rates  by  rail.  Com- 
petition in  its  various  forms  reduced  rates  on  long-dis- 
tance traffic  between  rival  cities  to  a  lower  figure  than  the 
public  had  supposed  possible ;  but  the  charges  on  local  traffic 
to  and  from  the  stations  served  by  only  one  railroad  were 
not  correspondingly  reduced,  and  gross  discriminations 
resulted.    The  public  demand  for  cheap  transportation  was 


450  RAILROAD  TRANSPORTATION 

changed    to   a   demand    for   the   abolition    of    unreasonable 
discriminations. 

This  is  clearly  shown  by  the  second  important  Federal 
report  on  railway  regulation — the  one  made  in  1886  by 
a  committee  of  the  Senate  and  called  the  Cullom  report 
(Sen.  Rep.  No.  46,  49  Cong.,  1  sess.),  from  the  chair- 
man of  the  committee,  Shelby  M.  Cullom,  of  Illinois. 
"The  paramount  evil,"  said  the  Cullom  committee,  "charge- 
able against  the  operation  of  the  transportation  system  of 
the  United  States  as  now  conducted  is  unjust  discrimina- 
tion between  persons,  places,  commodities,  or  particular 
descriptions  of  traffic."  The  main  object  of  government 
regulation  was  no  longer  considered  to  be  to  secure  cheap 
transportation,  but  to  insure  to  all  persons  and  to  different 
places  relatively  equitable  charges. 

A  year  after  the  Cullom  report  was  made  the  Interstate 
Commerce  Act  became  a  law.  Previous  to  this  time  nu- 
merous attempts  had  been  made  to  secure  legislation.  Janu- 
ary 20,  1874,  the  House  of  Representatives  passed  the 
McCreary  bill  (so  named  from  the  chairman  of  the  Com- 
mittee on  Railways  and  Canals)  with  provisions  similar  to 
Ihe  "granger  laws"  which  several  States  had  enacted.  The 
country  as  a  whole  was  not  in  favor  of  applying  the  granger 
legislation  to  the  Federal  regulation  of  railroads,  but  in 
December  1878  the  House  passed  the  Reagan  bill,  which 
had  been  championed  by  Representative  (later  Senator) 
John  H.  Reagan,  of  Texas.  This  was  a  conservative  meas- 
ure that  prohibited  pooling  and  discriminations,  required 
rates  to  be  published,  and  placed  the  enforcement  of  the 
law  in  the  hands  of  the  courts  instead  of  a  commission.  The 
bill  applied  only  to  freight  traffic  and  to  that  carried 
in  carload  lots.  The  Senate  did  not  act  on  the  Reagan 
bill  of  1878.  In  1885  the  Senate  and  the  House  each  passed 
a  bill,  but  legislation  was  prevented  by  the  differences 
cf  the  two  houses  as  to  the  provisions  to  be  included  in 


FEDERAL  REGULATION— THE  ACT  OF  1887    451 

the  law.  It  took  two  years  for  the  House  and  Senate  to 
agree,  and  then,  February  4,  1887,  they  compromised  on 
the  law  which,  with  many  amendments,  is  the  one  now 
in  force. 

As  the  States  endeavored  to  regulate  the  railroads  they 
realized  more  and  more  that  the  problems  to  be  dealt  with 
were  closely  connected  with  interstate  commerce  and  could 
not  be  handled  successfully  without  the  cooperation  of  the 
National  Government.  The  demand  for  Federal  action 
was  made  by  the  eastern  as  well  as  the  western  and  southern 
sections  of  the  country  as  soon  as  the  fact  was  clearly  as- 
certained that  the  authority  of  each  State  over  railway 
charges  was  limited  strictly  to  the  traffic  that  did  not. 
pass  the  boundaries  of  the  State.  Before  1886  several  of  the 
States  regulated  charges  on  all  the  traffic  originating  at  or 
destined  to  points  within  their  respective  boundaries.  In 
1886  the  Supreme  Court,  in  the  Wabash  decision  referred 
to  in  the  previous  chapter,  limited  the  authority  of  the 
State  strictly  to  the  intrastate  traffic  and  excluded  that  mov- 
ing from  one  State  to  another.  This  decision  of  the  Su- 
preme Court  greatly  narrowed  the  jurisdiction  of  each 
State  over  railway  charges,  and  increased  the  need  for  con- 
gressional action. 

The  Interstate  Commerce  law  of  1887  contained  twenty- 
four  sections.  It  applied  to  interstate  and  foreign  freight 
and  passenger  traffic  carried  by  railroad,  or,  in  cases  of 
continuous  shipment,  by  railroad  and  water.  It  did  not 
apply  to  intrastate  traffic  nor  to  interstate  or  foreign  traffic 
carried  entirely  by  water. 

The  first  section,  in  addition  to  defining  the  scope  of  the 
law,  provided  that  all  charges  should  be  just  and  reasonable 
and  declared  unlawful  every  unjust  and  unreasonable 
charge;  section  two  prohibited  all  unjust  personal  dis- 
criminations in  the  form  of  special  rates,  rebates  or  other- 
wise ;  section  three  forbade  discriminations  between  locali- 


452  RAILROAD  TRANSPORTATION 

ties,  commodities,  and  connecting  lines,  and  required  the 
provision  of  reasonable  and  equal  facilities  for  the  inter- 
change of  traffic.  These  three  sections  contained  the  essen- 
tial principles  of  the  statute.  The  law  went  one  step  farther 
in  rate  regulation  than  the  British  law  of  1854,  which 
merely  prohibited  unjust  discriminations. 
Section  four  of  the  statute  made  it 

unlawful  for  any  common  carrier  subject  to  the  provisions  of 
this  act  to  charge  or  receive  any  greater  compensation  in 
the  aggregate  for  the  transportation  of  passengers  or  of  like 
kind  of  property,  under  substantially  similar  circumstances  and 
conditions,  for  a  shorter  than  for  a  longer  distance  over  the 
same  line,  in  the  same  direction,  the  shorter  being  included 
within  the  longer  distance. 

This  "long  and  short  haul  clause"  of  the  act  was  inserted 
in  the  law  because  of  the  prominence  in  this  country  of  the 
particular  form  of  discrimination  against  which  it  was 
directed.  The  competition  of  rival  railroads  brought  about 
such  reductions  in  the  charges  for  through  traffic  as,  in 
many  cases,  to  result  in  higher  rates  to  intermediate  points 
than  were  charged  to  more  distant  points.  There  was 
much  difference  of  opinion  regarding  the  advisability  of  in- 
cluding section  four  in  the  law.  The  House  of  Represen- 
tatives favored  its  inclusion  in  the  act  and  its  enforce- 
ment under  all  circumstances,  but  the  Senate  foresaw  that 
unless  the  provisions  of  the  law  were  made  less  rigid, 
carriers  might  frequently  lose  their  traffic  at  competitive 
points  and  be  obliged  because  of  the  law  to  depend  even 
more  largely  for  their  income  upon  the  receipts  from  the 
local  traffic.  The  enforcement  of  a  long  and  short  haul 
clause  under  those  conditions  would  injure  both  the  local 
shipper  and  the  carrier.  The  views  of  the  Senate  prevailed, 
and  the  Interstate  Commerce  Commission  established  by 
the  act  was  given  power  to  suspend  the  operation  of  section 


FEDERAL  REGULATION— THE  ACT  OF  1887    453 

four  for  certain  carriers  in  special  cases  after  an  investi- 
gation of  the  conditions  of  competition. 

Section  five  prohibited  competing  railroads  from  pooling 
their  freights  or  their  aggregate  or  net  earnings.  No 
provision  of  the  law  has  been  more  debated  than  this 
antipooling  clause.  It  was  insisted  upon  by  the  House 
against  the  judgment  of  the  Senate.  The  House  believed 
that  enforced  competition  in  rate  making  by  rival  car- 
riers would  be  better  for  the  public  than  freedom  of  inter- 
railway  cooperation.  It  now  seems  clear  that  the  prohibi- 
tion of  pooling  was  a  mistake,  and  that  the  national  regula- 
tion of  railroads  would  have  been  more  successful  had 
pooling  been  permitted. 

The  sixth  section  of  the  law  stipulated  that  all  rates 
and  fares  should  be  printed  and  posted  for  public  inspec- 
tion at  all  stations.  No  advance  in  rates  was  to  be  made 
except  after  10  days'  public  notice,1  and  all  charges,  other 
than  those  published,  were  declared  unlawful.  Schedules  of 
rates  and  charges  were  to  be  filed  with  the  Interstate  Com- 
merce Commission  at  Washington,  and  the  commission  was 
to  be  promptly  notified  of  all  changes  in  the  schedules. 

Section  seven  declared  it  unlawful  for  any  carrier  sub- 
ject to  the  act  to  interrupt  unnecessarily  the  continuous  pas- 
sage of  freight  from  the  point  of  shipment  to  the  place  of 
destination.  The  object  of  this  section  was  to  prevent  in- 
terference with  through  shipments  merely  for  the  purpose 
of  changing  an  interstate  shipment  into  two  or  more  intra- 
state shipments. 

Section  eight  rendered  a  carrier  liable  for  damages  on 
account  of  losses  sustained  by  any  person  or  persons  through 
a  violation  of  the  law ;  section  nine  stipulated  that  a  person 
claiming  to  be   damaged  could   bring  action   for  recovery 

1  By  the  law  of  1887  reductions  in  rates  could  be  made  without 
previous  public  notice,  but  an  amendment  in  1889  required  three 
days'  notice  of  a  reduction. 


454-  RAILROAD  TRANSPORTATION 

either  before  the  Interstate  Commerce  Commission  or  in 
a  district  or  circuit  court;  section  ten  provided  that  a  fine 
not  exceeding  $5,000  should  be  imposed  for  each  violation 
of  the  law.  In  1889  certain  violations  were  made  punish- 
able by  both  fine  and  imprisonment.  It  was  stipulated,  how- 
ever, that  if  the  common  carrier  disobeying  the  law  was  a 
corporation,  only  the  officer  or  agent  who  violated  the  law 
should  be  punished. 

Section  eleven  established  an  Interstate  Commerce  Com- 
mission of  five  members  to  be  appointed  by  the  President 
of  the  United  States  with  the  consent  of  the  Senate.  Not 
more  than  three  commissioners  were  to  be  of  the  same 
political  party.  The  commissioners  were  not  to  own  rail- 
way securities,  and  were  not  permitted  to  "engage  in  any 
other  business,  vocation,  or  employment"  while  in  office. 
The  term  of  office  was  six  years,  and  the  salary  was 
placed  at  $7,500  a  year  (section  eighteen).  The  principal 
office  of  the  commission  (section  nineteen)  was  fixed  in 
the  city  of  Washington. 

Sections  twelve  to  twenty-one  outlined  in  detail  the  pow- 
ers and  duties  of  the  commission.  It  was  given  power  to 
r'nquire  into  the  management  of  the  business  of  all  common 
carriers  subject  to  the  law  and  was  authorized  to  compel 
carriers  to  produce  their  books  and  papers  and  give  testi- 
mony. No  witness  might  refuse  to  testify,  even  though 
his  testimony  might  tend  to  incriminate  himself,  but  such 
evidence  or  testimony  was  not  to  be  used  "against  such 
person  on  the  trial  of  any  criminal  proceeding."  Inquiries 
could  be  instituted  either  upon  complaint  or  upon  the  com- 
mission's own  motion.  Whenever  an  investigation  was 
made,  the  commission  was  to  make  a  report  in  writing,  which 
was  to  include  its  findings  as  to  fact  and  its  recommenda- 
tions as  to  what  reparation,  if  any,  should  be  made  by  the 
common  carrier  to  any  person  or  persons  found  to  have 
been  injured.     If  after  investigation  the  commission  was 


FEDERAL  REGULATION— THE  ACT  OF  1887    455 

of  the  opinion  that  the  law  had  been  violated  it  was  to 
serve  notice  to  the  violating  carrier  to  desist  from  its  illegal 
acts  and,  in  case  of  injury  to  a  complainant,  order  that 
reparation  be  made. 

Whenever  a  common  carrier  refused  to  obey  any  lawful 
order  or  requirement  of  the  commission,  it  was  the  duty 
of  the  commission  to  bring  proceedings  in  a  circuit  court 
of  the  United  States  to  compel  the  carrier  to  obey.  The 
court  was  empowered,  if  it  found,  after  hearing,  that  a 
lawful  order  of  the  commission  had  been  disobeyed,  to 
issue  a  writ  of  injunction  or  other  process  to  restrain  the 
carrier  from  disobedience.  It  was  provided  that,  in  the 
hearing,  the  report  of  the  commission  should  be  "prima 
facie  evidence  of  the  matters  therein  stated." 

The  commission  was  authorized  to  require  from  each 
carrier  subject  to  the  act  of  1887  an  annual  report  con- 
taining detailed  information  concerning  capitalization,  equip- 
ment, labor  staff,  receipts,  operating  and  other  expenses,  and 
"a  complete  exhibit  of  the  financial  operations  of  the  carrier 
each  year,  including  an  annual  balance-sheet."  The  com- 
mission was  also  given  power  to  prescribe  a  uniform  system 
of  accounts  to  be  adopted  by  the  carriers,  but,  as  was  ex- 
plained in  Chapter  XVI,  this  provision  was  ineffective. 
Section  twenty-one  provided  that  the  commission  should 
make  an  annual  report,  containing  such  information  and 
data  as  might  be  considered  of  value  in  the  determination 
of  questions  connected  with  the  regulation  of  commerce, 
together  with  recommendations  as  to  additional  legislation. 

The  operation  of  the  Interstate  Commerce  law  of  1887 
was  very  unlike  what  its  framers  expected,  partly  because 
of  defects  in  the  law  itself,  but  chiefly  because  the  courts 
so  interpreted  the  main  provisions  of  the  act  as  greatly  to 
limit  its  scope.  The  law  was  initial  legislation  by  Con- 
gress upon  a  problem  of  great  magnitude,  and  it  was 
hardly  possible  that  all  the  economic  and  legal  questions 


450  RAILROAD  TRANSPORTATION 

involved  should  be  foreseen.  The  operation  of  the  law 
centered  around  the  work  of  the  Interstate  Commerce  Com- 
mission as  an  investigating  body  and  as  a  board  for  the 
equitable  adjustment  of  transportation  charges  and  the 
correction  of  unjust  discriminations.  It  was  both  in  de- 
termining the  powers  which  the  commission  possessed  under 
the  law  and  in  interpreting  the  meaning  of  various  sections 
of  the  act  itself  that  the  courts  prevented  the  statute  from 
accomplishing  the  purposes  intended  by  its  framers.  Though 
not  proving  to  be  of  great  value  as  a  means  of  securing 
adequate  railway  regulation,  the  Act  of  1887,  nevertheless, 
accomplished  a  vast  amount  of  good,  and  its  very  defects, 
as  they  were  exposed,  were  of  educational  value  in  indicating 
what  was  needed  in  order  that  a  satisfactory  system  of 
regulation  might  be  established. 

One  of  the  chief  weaknesses  of  the  law  was  that  it  failed 
to  make  the  orders  of  the  commission  binding  upon  the 
railroads.  When  the  commission  made  a  decision  and  issued 
an  order,  the  carriers  against  whom  the  order  was  directed 
could  obey  if  they  chose  to  do  so,  or  they  could,  without 
penalty,  ignore  the  order  entirely.  In  the  latter  case  the 
commission  or  other  interested  parties  could  apply  to  the 
Circuit  Court  of  the  United  States  for  a  writ  to  compel 
obedience;  the  burden  of  initiating  the  action  to  test  the 
legality  of  the  orders  of  the  commission  never  fell  upon 
the  carriers.  The  Circuit  Court  to  which  the  commission 
might  appeal  for  the  enforcement  of  its  decision  might  issue 
an  order,  which  in  turn  could  be  carried  on  appeal  to  the 
Supreme  Court.  Sometimes  years  would  elapse  before  it 
became  known  whether  the  order  of  the  commission  was 
to  have  the  binding  effect  of  law. 

This  delay,  due  to  the  method  provided  for  securing  the 
enforcement  of  the  commission's  orders,  was  accentuated 
by  the  attitude  which  the  courts  assumed  toward  the  com- 
mission and  its  decisions.    It  was  supposed  by  the  framers  of 


FEDERAL  REGULATION— THE  ACT  OF  1887    457 

the  act  of  1887  that  the  commission  was  to  have  the  entire 
work  of  investigating  and  deciding  upon  the  facts  in  all 
cases  which  should  come  before  it,  and  that  the  courts 
would  exercise  only  the  power  of  reviewing  questions  of 
law  which  might  be  involved  in  enforcing  the  commission's 
orders.  Such,  however,  was  not  the  practice  of  the  courts. 
They  allowed  the  defendants  to  introduce  evidence  which 
had  not  been  submitted  to  and  passed  upon  by  the  com- 
mission. This  ruling  of  the  courts,  which  was  first  made 
in  1889,1  greatly  reduced  the  effectiveness  of  the  commis- 
sion as  an  investigating  body.  The  parties  complained 
against  often  regarded  the  commission's  investigation  as  a 
preliminary  inquiry,  and  instead  of  answering  the  charges 
fully  before  the  commission,  reserved  the  most  important 
testimony  for  their  defense  for  a  later  trial  before  the 
court,  where  the  entire  case  would  be  tried  de  novo.  This 
practice  caused  a  duplication  of  work,  added  greatly  to  the 
expense  of  trying  complaints,  caused  long  delays  in  ad- 
judication and  tended  to  discourage  persons  having  griev- 
ances from  bringing  complaints  before  the  commission.  The 
abuse  became  so  burdensome  that  the  Supreme  Court  dis- 
countenanced the  practice,  declaring  that  it  was  clearly 
intended  by  the  law  that  all  material  facts  should  be  pre- 
sented in  the  hearing  before  the  commission.2  The  question 
of  procedure  could  not  be  definitely  settled,  however,  with- 
out a  modification  of  the  law. 

Not  only  did  the  courts  adopt  the  practice  of  investigating 
the  material  facts  involved  in  cases  appealed  to  them  for 
adjudication,  but  they  rendered  decisions  which  were  based 
quite  as  much  upon  their  own  as  upon  the  commission's  in- 
terpretation of  the  facts,  thereby  virtually  constituting  them- 

1  By  Associate-Justice  Jackson  in  Kentucky  and  Indiana  Bridge 
Co.  v.  Louisville  and  Nashville  Railroad  Co.,  decided  January  7, 
1889  (37  Federal  Reporter  567). 

'  162  U.  S.  184;  the  Social  Circle  case,  decided  in  1896. 


458  RAILROAD  TRANSPORTATION 

selves  fellow  commissioners.  Congress  undoubtedly  in- 
tended to  give  to  the  commission  the  final  decision  as  to  the 
economic  questions  involved  in  railway  regulation  and  to 
confine  the  courts  to  the  consideration  of  questions  of  law. 
It  was  impossible  to  keep  legal  and  economic  issues  entirely 
distinct,  especially  in  cases  involving  the  reasonableness  of 
rates ;  but  even  in  cases  where  the  separation  of  the  issue 
could  be  clearly  made  the  courts  failed  to  confine  them- 
selves to  questions  of  law. 

In  addition  to  lessening  the  efficiency  of  the  commission 
as  an  administrative  body  by  adopting  the  custom  of  re- 
ceiving new  evidence  (not  previously  presented  to  the 
commission)  and  by  basing  their  decisions  on  their  own 
interpretation  of  the  facts,  the  Federal  courts  further  re- 
stricted the  powers  of  the  commission  by  refusing  for  six 
years — from  1890  to  1896 — to  compel  witnesses  to  give 
testimony  of  an  incriminating  nature.  The  law  stipulated 
that  no  witness  might  refuse  to  testify  on  the  ground 
that  his  testimony  might  tend  to  incriminate  him,  but  pro- 
tected the  witness  from  criminal  prosecution  based  on  the 
testimony  he  might  give  as  a  witness.  The  courts  main- 
tained that  the  witness  must  be  "afforded  absolute  im- 
munity against  future  prosecution"  (Counselman  v.  Hitch- 
cock, 142  U.  S.  547),  in  order  to  enjoy  the  protection  guar- 
anteed to  him  by  the  fifth  amendment  of  the  Constitution, 
which  contains  the  clause  "nor  shall  he  be  compelled,  in  any 
criminal  case,  to  be  a  witness  against  himself."  In  1893 
Congress  passed  a  law  which  gave  a  witness  protection 
against  any  prosecution,  civil  or  criminal,  on  account  of 
any  testimony  or  evidence  submitted.  This  law  did  not, 
however,  immediately  settle  the  question,  because  certain 
inferior  Federal  courts  still  maintained  that  the  witness 
was  not  afforded  the  protection  guaranteed  him  by  the  fifth 
amendment.  The  matter  was  finally  disposed  of  by  the 
United  States  Supreme  Court  in  the  Brown  case,  decided 


FEDERAL  REGULATION— THE  ACT  OF  1887    459 

March  23,  1896  (Brown  v.  Walker,  161  U.  S.  591).  One 
Theodore  F.  Brown,  auditor  of  the  Alleghany  Valley  Rail- 
road, refused  to  testify  before  the  Federal  Grand  Jury 
of  the  Western  District  of  Pennsylvania  regarding  rebates 
alleged  to  have  been  given  by  two  fellow  officers.  The 
district  judge  held  him  guilty  of  contempt  of  court,  and 
when  the  case  reached  the  Supreme  Court  on  appeal  it 
was  decided  that  the  full  immunity  from  prosecution  af- 
forded by  the  Interstate  Commerce  law  as  amended  in  1893 
was  all  the  protection  a  witness  could  claim  under  the 
Constitution.  Thus,  in  1896,  the  commission  definitely 
obtained  compulsory  power  of  investigation,  but  for  much 
of  the  time  for  six  years  it  had  been  able  to  secure  only 
such  facts  as  witnesses  might  choose  voluntarily  to  give. 

It  was  thought  that  the  law  of  1887  would  serve  as  a 
satisfactory  means  of  securing  the  regulation  of  rates  on 
interstate  traffic,  but  in  this  matter  also  the  act  was  de- 
prived of  effectiveness  by  decisions  of  the  courts.  As  was 
stated  above,  the  law  forbade  unreasonably  high  and  un- 
justly discriminatory  charges,  established  a  commission  to 
decide  whether  rates  and  fares  were  reasonable  and  just, 
and  provided  that  upon  the  complaint  of  any  shipper, 
passenger  or  other  interested  party,  or  upon  its  own  motion, 
the  commission  might  investigate  specific  charges  and  prac- 
tices of  the  carriers  to  determine  whether  the  law  was 
being  observed.  If  the  commission  found  that  carriers 
were  charging  unreasonable  or  unjust  rates,  or  were  engag- 
ing in  practices  prohibited  by  the  law,  it  might  order  the 
carrier  to  desist  from  making  such  charges  or  engaging 
in  such  practices,  and  might  award  damages  to  complain- 
ants who  had  suffered  injury.  For  ten  years  it  was  the 
practice  of  the  commission,  when  ordering  a  carrier  to 
desist  from  charging  an  unreasonable  rate,  to  name  the 
rate  that  would  be  reasonable,  and  to  order  the  carrier 
to  put  in  force  a  rate  not  exceeding  the  one  named  by 


460  RAILROAD  TRANSPORTATION 

the  commission ;  but  in  1897  the  Supreme  Court  in  the 
Maximum  Rate  case  (Interstate  Commerce  Commission  v. 
Cincinnati,  Nezv  Orleans  and  Texas  Pacific  Railway  Com- 
pany, 167  U.  S.  479)  decided  "that  the  power  to  prescribe 
rates  or  fix  any  tariff  is  not  among  the  powers  granted 
to  the  commission."  By  this  decision  the  commission's 
power  over  rates  was  limited  to  deciding  merely  what  ought 
not  to  have  been. 

Not  only  was  the  law  made  ineffective  for  the  purpose 
of  securing  the  establishment  of  reasonable  rates,  but  its 
main  provisions  for  the  protection  of  shippers  and  localities 
against  unjust  discriminations  were  greatly  limited  in  scope. 
Though  the  Act  of  1887  declared  only  published  rates  lawful, 
reductions  could  be  made  on  short  notice,  and  to  prove 
that  preferential  treatment  had  been  accorded  to  individual 
shippers  it  was  necessary  to  show  that  rates  lower  than 
published  rates  had  actually  been  given,  and  that  other 
shippers  had  been  charged  higher  rates  at  the  same  time 
for  similar  shipments.  Under  these  conditions  actual  proof 
of  personal  discrimination  was  virtually  impossible,  and 
this  abuse  continued  to  flourish  notwithstanding  the  at- 
tempts of  both  the  commission  and  the  courts  to  put  a  stop 
to  it. 

It  was  thought  that  one  of  the  most  common  forms  of 
place  discrimination  had  been  guarded  against  in  the  fourth 
section  of  the  law  of  1887,  which  contained  the  prohibition 
against  charging  more  for  a  shorter  than  for  a  longer  haul 
"over  the  same  line,  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance."  This  section 
made  a  specific  application  of  the  general  principle  that  no 
"undue  or  unreasonable  preference  or  advantage"  should 
be  given  "to  any  particular  person,  firm,  corporation,  or 
locality,  or  any  particular  description  of  traffic."  The  im- 
portance of  section  four  was  not  lessened,  however,  by 
the  fact  that  it  was  but  a  specific  application  of  section  three. 


FEDERAL  REGULATION— THE  ACT  OF  1887     461 

Of  the  transportation  abuses  in  the  United  States  due  to 
competition  and  demanding  government  regulation,  none 
was  so  great  in  1887  as  that  of  local  discrimination  whereby 
the  smaller  .non-competitive  points  were  made  to  pay  higher 
rates  than  those  places  having  several  rival  carriers.  The 
local  points  were  not  always  charged  rates  which  were  in 
themselves  exorbitant  and  unreasonable,  but  they  were 
placed  at  a  distinct  disadvantage  in  competition  with  points 
having  more  than  one  railroad.  In  many  instances  the  dis- 
crimination involved  a  greater  charge  for  a  shorter  than  for 
a  longer  haul,  and  it  was  to  correct  this  particular  abuse  that 
section  four  of  the  law  of  1887  was  formulated. 

The  restriction  in  section  four  that  the  charge  for  the 
short  haul  should  not  exceed  that  for  the  longer  one  ap- 
plied to  "the  transportation  of  passengers  or  of  like  kind 
of  property,  under  substantially  similar  circumstances  and 
conditions,"  and  "over  the  same  line."  The  scope  of  the 
section  depended  upon  what  was  meant  by  the  "same  line" 
and  by  "similar  circumstances  and  conditions."  For  a 
while  it  was  held  by  some  courts  that  a  joint  line  com- 
posed of  two  or  more  roads  formed  an  individual  line 
distinct  from  those  formed  by  the  roads  which  together 
made  up  the  joint  line,  and,  accordingly,  that  shipments 
over  the  joint  line  and  over  the  component  roads  were 
not  shipments  "over  the  same  line."  On  this  ground  it 
was  contended  that  the  through  or  joint-line  charges  might 
be  less  than  the  charges  for  a  shipment  over  one  of  the 
roads  forming  the  joint  line.  Since  a  large  part  of  in- 
terstate railway  traffic  consists  of  joint-line  business,  this 
definition  of  the  word  "line"  threatened  to  rob  the  fourth 
section  of  much  of  its  validity;  but  in  1896  the  Supreme 
Court  in  the  Social  Circle  case  (Cincinnati,  Nezv  Orleans 
and  Texas  Pacific  Railway  v.  Interstate  Commerce  Com- 
\mission,  162  U.  S.  184)  refused  to  accept  the  narrow 
technical  definition   of   the    word   line,   and   held   that  the, 


462  RAILROAD  TRANSPORTATION 

charges  on  one  of  the  component  roads  must  not  exceed 
the  joint-line  charge. 

The  interpretation  which  the  Supreme  Court  put  upon 
the  phrase  "under  substantially  similar  circumstances  and 
conditions"  was  much  less  fortunate  for  the  commission  and 
for  its  work  of  railway  regulation.  One  of  the  first  ques- 
tions which  the  commission  was  called  upon  to  decide  in  the 
administration  of  the  law  was  what  constituted  such  dis- 
similarity of  circumstances  and  conditions  as  to  justify  a 
railway  company  in  charging  more  for  a  shorter  than  for  a 
longer  haul.  The  reason  why  the  railroads  made  such 
discriminations  in  favor  of  the  longer  haul  was  competition. 
The  competition  of  the  railroad  was  sometimes  with  rival 
waterways  not  subject  to  the  Interstate  Commerce  Act,  and 
sometimes  with  other  railways  regulated  by  that  law.  As  it 
was  not  the  intention  of  Congress  in  passing  the  Act  of 
1887  to  do  away  with  competition  among  the  carriers  sub- 
ject to  that  law,  the  commission  ruled  that  the  competition 
of  rival  railways,  each  subject  to  the  regulation  provided 
for  by  the  act  of  Congress,  did  not  constitute  the  dis- 
similarity of  circumstances  and  conditions  to  which  the 
fourth  section  of  the  law  referred.  The  competition  of 
railways  with  waterways — a  different  kind  of  transporta- 
tion agency,  the  traffic  upo.ii  which  was  not  subject  to 
governmental  regulation — was,  however,  held  to  create  cir- 
cumstances and  conditions  which  were  dissimilar  and  which 
might  justify  a  less  charge  for  the  longer  distance.  Such 
was  uniformly  the  ruling  of  the  commission  until  November 
1897,  when  the  Supreme  Court  in  the  Troy  case  (Inter- 
state Commerce  Commission  v.  the  Alabama  Midland  Rail- 
zvay  Company  and  Others,  168  U.  S.  144)  decided  that 
competition  between  rival  railways  might  create  dissimi- 
larity of  circumstances  and  warrant  a  disregard  of  the  fourth 
section. 

This  ruling  of  the  Supreme  Court  deprived  the  fourth 


FEDERAL  REGULATION— THE  ACT  OF  1887    463 

section  of  the  Interstate  Commerce  law  of  most  of  its 
vitality.  It  was  included  in  the  law  to  prevent  a  very 
prominent  kind  of  discrimination  that  was  caused  by  com- 
petition. The  law  did  not  remove  the  cause,  but  sought 
to  limit  the  operation  of  the  cause  by  declaring  the  result- 
ing practices  illegal.  The  court  virtually  held  in  the  Troy 
case  that  the  result  was  justified  by  the  presence  of  the  cause. 
Another  kind  of  rate  discrimination  which  it  was  at- 
tempted to  correct  by  the  application  of  the  law  of  1887 
was  that  made  between  commodities  of  domestic  and  of 
foreign  production.  Goods  imported  into  this  country  are 
frequently  shipped  on  through  bills  of  lading  from  the 
foreign  port  to  the  interior  American  city  of  destination, 
and  the  railroad  charge  from  the  port  of  entry  in  the 
United  States  to  the  point  of  destination  is  a  part  of  a 
through  rate.  This  through  rate  fluctuates  with  the  varia- 
tions in  ocean  freight  rates,  and  the  portion  received  by  the 
railroad  in  the  case  of  many  articles  is  less  than  the  rate 
charged  for  carrying  domestic  goods  between  the  seaboard 
and  interior  cities.  The  importer  of  such  articles  is  favored 
more  than  the  domestic  shipper.  Indeed,  the  entire  through 
rate  from  the  foreign  port  to  the  interior  point  in  this  coun- 
try is  sometimes  less  than  the  charge  on  domestic  commodi- 
ties from  the  seaboard  to  the  same  inland  city.  In  the  Import 
Rate  case,  the  Interstate  Commerce  Commission  took  the 
ground  that  it  could  not  properly  consider  the  circumstances 
and  conditions  of  competition  which  might  create  reasons  for 
charging  low  rates  on  import  traffic,  and  that  a  higher  charge 
on  domestic  commodities  was  an  unjust  discrimination. 
This  decision,  after  being  twice  sustained  in  appellate  courts, 
was  reversed  by  the  Supreme  Court,  March  30,  1896  (Texas 
and  Pacific  Railway  Co.  v.  Interstate  Commerce  Commission, 
162  U.  S.  197),  the  court  holding  that  by  the  law  the 
commission  was  bound  to  consider  the  circumstances  under 
which  foreign  trade  was  carried  on,  and  that  the  Act  ot 


464  RAILROAD  TRANSPORTATION 

1887  did  not  expressly  prohibit  the  discrimination  in  favor 
of  foreign  commodities.    Though  widening  the  scope  of  the 
law,  the  Supreme  Court  opened  the  door  for  discrimination. 
Although  the  law  of  1887  failed  to  accomplish  the  main 
purpose   for  which   it  was   enacted — the   equitable   adjust- 
ment of   rates   and   fares — because  of   the   interpretations 
placed  by  the  Federal  courts  on  its  most  important  provi- 
sions,  it   did,   nevertheless,   have   many   important   results: 
(1)  Publicity  of  rates  was  secured,  and  the  public  knowl- 
edge of  railway  affairs  was  increased,  by  the  excellent  re- 
ports and  statistics  published  by  the  Interstate  Commerce 
Commission;  (2)  the  law  was  of  service  in  bringing  about 
the  reduction  of  the  number  of  freight  classifications  in  the 
country;    (3)    the  commission,  by  its  informal  as  well  as 
by   its   formal   investigations,   did   much   to   bring  about  a 
better  adjustment  of  railway  charges,  as  between  different 
localities,  different  commodities,  and  different  shippers ;  (4) 
the  work  of  the  commission  was  of  great  educational  value. 
Its  reports  discussed  in  a  clear  and  comprehensive  manner 
the    important    phases    of    the    railway    questions    as    they 
presented  themselves  year  by  year,  and  its  decisions  de- 
veloped a  serviceable  and  valuable  administrative  code  re- 
garding railway  regulation.     The  experience  under  the  law 
indicated  clearly  the  changes  which  should  be  made  in  the 
act  in  order  that  the  task  of  railway  regulation  might  be 
satisfactorily  accomplished.     By  the  close  of  the  nineteenth 
century  the  need  for  at  least  five  changes  in  the  law  was 
clear.    It  was  evident : 

1.  That  a  more  effective  means  of  preventing  personal 
discrimination  and  discrimination  between  places  should 
be  devised.  The  difficulty  of  producing  the  proof  of  prefer- 
ential treatment  which  the  courts  required,  and  the  inter- 
pretation of  the  long  and  short  haul  clause  prevented  the 
effective  use  of  sections  three  and  four  of  the  law  of  1887. 

2.  That  the  Interstate  Commerce  Commission,  in  order  to 


FEDERAL  REGULATION— THE  ACT  OF  1887    465 

perform  its  chief  tasks — that  of  establishing  reasonable  rail- 
way charges  and  that  of  correcting  discriminations — should 
have  the  power  to  decide  what  constituted  a  reasonable  and 
lawful  rate;  and  that  after  the  commission  determined  by 
means  of  a  full  and  careful  investigation  that  a  particular 
rate  charged  by  a  carrier  was  unreasonable,  it  should  have 
the  power  to  name  the  rate  which  under  the  existing  cir- 
cumstances would  be  reasonable  and  lawful. 

3.  That  the  decisions  and  orders  of  the  commission  as  to 
rates  and  other  matters  should  be  binding  upon  the  carrier, 
unless  the  enforcement  of  the  order  should  be  suspended  by 
an  injunction  of  a  Federal  court  acting  upon  the  appeal 
of  the  carrier.  The  Act  of  1887  erred  in  permitting  a  car- 
rier without  penalty  to  ignore  the  order  of  the  commission 
and  in  compelling  the  commission  to  initiate  the  legal  pro- 
ceedings necessary  to  determine  the  validity  of  its  orders. 

4.  That  the  procedure  in  the  judicial  review  of  the  orders 
of  the  commission  should  be  more  carefully  and  clearly  de- 
fined. The  commission  should  be  the  judge  as  to  the  facts 
in  controversies  between  the  carriers  and  the  public,  and  the 
court  in  reviewing  the  orders  of  the  commission  should 
not  go  behind  its  findings  as  to  fact,  when  based  upon  evi- 
dence. 

5.  That  the  commission  should  possess  the  power,  under 
such  restrictions  as  would  safeguard  the  business  of  the 
carriers,  to  inspect  and  audit  the  accounts  of  railways  en- 
gaged in  interstate  commerce.  By  giving  the  commission 
these  powers  it  would  be  possible  for  it  to  prescribe  a  uni- 
form system  of  accounting,  the  detection  of  discriminations 
would  be  made  easier,  and  the  value  of  the  statistics  of  rail- 
ways would  be  greatly  increased. 

Virtually  all  of  these  needed  changes  in  the  law  of  1887, 
and  other  modifications  of  great  importance,  were  made  by 
the  statutes  enacted  in  1903,  1906,  and  1910.  In  the 
following   chapter   the   legislation    of   these   years    will   be' 


466  RAILROAD  TRANSPORTATION 

discussed  together  with  the  other  Federal  laws  which  have 
been  enacted  for  the  regulation  of  railroads. 

REFERENCES 

Report  of  Select  Committee  on  Transportation  Routes  to  the 
Seaboard  (Senate  Report  No.  307,  43  Cong.,  1  sess.,  Ill, 
parts  i  and  ii,  1874;  the  Windom  Report). 

Report  of  Senate  Select  Committee  on  Interstate  Commerce 
(Senate  Report  No.  46,  49  Cong.,  1  sess.,  2  vols.,  1886;  the 
Cullom  Report). 

Interstate  Commerce  Commission.  Reports  (annual)  ;  Statis- 
tics of  Railways  (annual). 

Report  of  the  Industrial  Commission,  XIX,  419-444   (1902). 

Meyer,  B.  H.  "The  Interstate  Commerce  Commission,"  in 
Political  Science  Quarterly,  XVII,  September  1902. 

Dabney,  W.  D.     The  Public  Regulation  of  Railways  (1889). 

Dos  Passos,  J.  R.  The  Interstate  Commerce  Act:  An  Analysis 
of  Its  Provisions  (1887). 

Seligman,  E.  R.  A.  "Railway  Tariffs  and  the  Interstate  Com- 
merce Law,"  in  Political  Science  Quarterly,  II,   1887. 

Hendrick,  F.  Railzvay  Control  by  Commissions,  chap,  viii 
(1900). 

Kirkman,  M.  M.  Railway  Rates  and  Government  Control 
(1892). 

Stickney,  A.  State  Control  of  Trade  and  Commerce  by  Na- 
tional or  State  Authority   (1897). 

Regulation  of  Railway  Rates.  Hearings  before  Committee  on 
Interstate  Commerce,  Senate  of  the  United  States,  Decem- 
ber 16,  ipo4,  to  February  23,  1905,  on  Bills  to  Amend  the 
Interstate  Commerce  Act  (Senate  Doc.  No.  243,  59  Cong., 
1  sess.,  5  vols.,  1905).  [Contains  the  testimony  taken  by 
the  committee  that  conducted  the  hearings  that  preceded 
the  passage  of  the  Hepburn  amendment  of  1906,  which 
was  the  most  important  of  the  laws  modifying  the  act  of 
1887.] 

Ripley,  W.  Z.  Railroads:  Rates  and  Regulation,  chaps,  xiii 
and  xiv  (1912). 


CHAPTER  XXVII 

FEDERAL    LEGISLATION    FROM    1903    TO    1914 

The  Elkins  Act  of  1903,  467.  The  Expediting  Act  of  1903,  468. 
Enactment  of  the  Hepburn  amendment  of  1906,  469.  Main 
provisions  of  the  Hepburn  amendment,  469.  The  question  01 
judicial  review,  474.  The  grounds  upon  which  the  courts  set 
aside  orders  of  the  commission,  475.  The  Mann-Elkins  Act  of 
1910,  477.  Other  amendments  to  the  Interstate  Commerce  Act, 
1910-1915,  480.  The  Federal  Anti-trust  law  applicable  to  rail- 
roads, 483.  Federal  regulation  of  railroad  operation,  484.  Gen- 
eral character  of  the  system  of  Federal  regulation  as  it  existed 
in  1910,  486     The  need  for  modification,  486.     References,  487. 

The  first  important  Federal  law  for  the  regulation  of 
railways  enacted  after  the  passage  of  the  law  of  1887  was 
the  Elkins  Act,  which  was  approved  February  19,  1903. 
This  law  dealt  almost  exclusively  with  the  question  of 
personal  discrimination,  and  was  designed  to  meet  the  grow- 
ing problem  of  monopolization  of  production  and  trade 
by  great  industrial  combinations,  many  of  which  were 
fostered  and  encouraged  by  the  preferential  treatment  which 
they  secured  from  the  railroads.  Not  only  the  general 
public  but  the  railroad  corporations  also  were  anxious  to 
put  an  end  to  the  existing  system  of  rebates  and  preferential 
rates.  Managers  of  railways  had  long  been  convinced  that 
needless  losses  of  revenue  were  incurred  on  account  of  the 
rebating  evil,  but  until  a  more  effective  law  was  enacted 
to  prevent  the  practice  they  were  unable  to  offer  a  combined 
resistance  to  the  pressure  exerted  by  large  shippers  to  secure 
preferential  treatment.  The  Elkins  Act  was  intended  to  pro- 
tect both  the  public  and  the  railroads. 

467 


468  RAILROAD  TRANSPORTATION 

First  of  all,  the  law  made  corporations  as  well  as  their 
agents  liable  for  violation  of  the  laws  to  regulate  interstate 
commerce,  thereby  changing  the  provisions  of  the  law  of 
1887,  under  which  penalties  could  be  inflicted  only  upon 
the  agents  of  carriers  which  had  a  corporate  form  of  organ- 
ization. The  penalty  of  imprisonment  for  deviation  from 
published  rates,  which  was  provided  for  in  1889,  was 
abolished,  leaving  a  fine  as  the  only  method  of  punishment. 
The  most  important  feature  of  the  act  was  that  it  made\ 
departure  from  published  rates  the  sole  test  of  discrimina-l 
tion.  Under  this  law  it  is  not  necessary,  in  order  to  prove 
discrimination,  to  show  that  one  shipper  has  received  a 
lower  rate  than  another  for  similar  traffic ;  it  is  sufficient 
merely  to  show  that  the  railway  company  has  made  a  devia- 
tion from  its  published  schedule  of  rates.  Any  such  devia- 
tion or  any  offer  to  make  such  a  deviation  was  made  punish- 
able by  a  fine  of  not  less  than  $1,000  and  not  more  than 
$20,000.  Moreover,  the  receiver  of  the  rebate  as  well  as 
the  giver  was  to  be  regarded  as  guilty  of  violating  the 
law.  As  an  additional  means  of  preventing  discrimination 
the  Elkins  Act  provided  that  whenever  the  Interstate  Com- 
merce Commission  should  have  reasonable  ground  to  believe 
that  a  carrier  was  committing  a  discrimination  forbidden  by 
law,  a  petition  alleging  the  facts  might  be  presented  to  a 
Circuit  Court  of  the  United  States,  which,  upon  being  satis- 
fied of  the  truth  of  the  allegation,  should  issue  an  order 
requiring  a  discontinuance  of  the  discrimination  and  an 
observance  of  published  rates. 

Another  law,  the  Expediting  Act,  was  passed  on  February 
11,  1903,  for  the  purpose  of  securing  more  effective  regu- 
lation of  the  railroads.  This  act  provided  that  in  any  suit 
in  equity  brought  in  any  Circuit  Court  of  the  United  States 
under  the  Act  to  Regulate  Commerce  of  1887,  the  Sherman 
Antitrust  Act  of  1890,  or  any  other  acts  having  a  like 
purpose,  wherein  the  United  States  was  a  complainant,  the 


FEDERAL  LEGISLATION,  1903-1914        469 

Attorney  General  might  file  with  the  clerk  of  the  court  a  cer- 
tificate stating  that  in  his  opinion  the  case  "is  of  general 
public  importance/'  whereupon  the  case  should  be  given 
precedence  over  others  and  in  "every  way  expedited  and  be 
assigned  for  hearing  at  the  earliest  practicable  day"  before 
not  less  than  three  Federal  court  judges.  Appeals  from  the 
decision  of  the  Circuit  Court  were  to  be  made  only  to  the 
Supreme  Court  and  within  60  days  after  the  entry  of  the 
decree  of  the  circuit  court.  It  was  hoped  by  this  law  to  coun- 
teract the  tendency  toward  delay  which  had  prevented  the 
effective  administration  of  the  Act  of  1887. 

While  the  legislation  of  1903  was  effective  in  restricting 
the  practice  of  personal  discrimination,  it  did  not  solve  that 
problem  entirely  and  it  contributed  but  little  toward  the  solu- 
tion of  the  other  pressing  and  equally  important  problems  of 
railway  regulation,  such  as  those  of  securing  reasonable 
rates,  of  increasing  the  powers  of  the  Interstate  Commerce 
Commission,  of  regulating  accounting  practices,  and  of 
correcting  other  forms  of  discrimination.  Increasing  pres- 
sure was  brought  to  bear  upon  Congress  to  modify  the 
law  of  1887,  and  in  1906  an  amendment  to  that  act  was 
passed,  by  which  its  scope  was  vastly  extended.  The  law 
of  1906,  known  as  the  Hepburn  amendment,  marked  the 
real  beginning  of  the  regulation  of  railroad  rates  and  serv- 
ices by  the  Federal  Government.  By  it  most  of  the  defects  | 
of  the  law  of  1887  were  corrected. 

The  Hepburn  amendment,  in  the  first  place,  extended 
the  scope  of  the  Interstate  Commerce  Act  by  making  it  ap- 
plicable not  only  to  railroads,  but  to  express  companies, 
sleeping-car  companies,  and  pipe  lines  for  transporting  oil  or 
other  commodities  except  water  and  gas.  The  term  "rail- 
road" was  defined  to  include  "switches,  spurs,  tracks  and 
terminal  facilities,"  and  the  term  "transportation"  to  com- 
prehend "cars  and  other  vehicles  and  all  instrumentalities 
and  facilities  of  shipment  or  carriage,  irrespective  of  owner- 


470  RAILROAD  TRANSPORTATION 

ship  or  of  any  contract,  expressed  or  implied,  for  the 
use  thereof  and  all  services  in  connection  with  the  receipt, 
delivery,  elevation  and  transfer  in  transit,  ventilation,  re- 
frigeration or  icing,  storage  and  handling  of  property  trans- 
ported," thereby  bringing  under  the  operation  of  the  act 
industrial  railroads,  private  car  lines  and  all  other  agencies 
connected  directly  with  railroad  transportation. 

The  provisions  of  the  Act  of  1887  with  reference  to  rea- 
sonable rates,  discrimination,  interchange  of  traffic,  the  "long 
and  short  haul  clause"  and  pooling  were  retained.  The 
railroads  were  required,  upon  application,  to  construct  and 
maintain  reasonable  switch  connections  with  any  lateral 
branch  line  of  railroad  or  with  any  private  side  track 
where  such  connection  was  reasonably  practicable  and  would 
furnish  sufficient  business  to  justify  its  construction.  In 
an  attempt  to  meet  a  form  of  discrimination  practiced  by 
coal-carrying  railroads  which  were  heavily  interested  in 
mining  the  coal  carried  over  their  lines,  a  "commodities 
clause"  was  inserted  in  section  one  of  the  law,  providing 
that  no  road  should  transport  in  interstate  business  "any 
article  or  commodity,  other  than  timber  and  the  manu- 
factured products  thereof,  manufactured,  mined,  or  pro- 
duced by  it,  or  under  its  authority  .  .  .  except  such  ar- 
ticles or  commodities  as  may  be  necessary  and  intended 
for  its  use  in  the  conduct  of  its  business  as  a  common  car- 
ner. 

The  requirements  as  to  publicity  of  rates  were  retained 
and  carriers  were  forbidden  to  engage  in  the  transporta- 
tion business  unless  schedules  of  rates  were  filed  with  the 
Interstate  Commerce  Commission  and  published  in  accord- 
ance with  the  provisions  of  the  law.  It  was  stipulated, 
moreover,  that  no  change  should  be  made  in  rates  or  fares 
except  after  30  days'  notice  both  to  the  public  and  to  the 
Interstate  Commerce  Commission.  The  commission  wa^ 
given  authority,  however,  to  modify  the  requirements  as  to 


FEDERAL  LEGISLATION,  1903-191 1        471 

giving  notice  if  good  cause  could  be  shown  for  such  action. 
The  penalty  of  imprisonment  for  deviation  from  published 
rates  and  other  forms  of  unlawful  discrimination,  which 
had  been  abolished  in  1903,  was  restored,  and  specifically 
made  applicable  to  the  shipper  as  well  as  to  the  carrier.  The 
sections  of  the  law  conferring  upon  persons  injured  by 
violations  of  the  Interstate  Commerce  Act  the  right  to 
bring  action  for  damages  either  before  the  Interstate  Com- 
merce Commission  or  the  Federal  courts  was  retained. 
Free  transportation  of  passengers  and  free  passes,  except 
in  specified  cases,  were  forbidden  under  a  penalty  of  fine. 
The  so-called  Carmack  amendment  provided  that  a  car- 
rier receiving  traffic  for  interstate  shipment  should  issue 
a  bill  of  lading  therefor,  and  should  be  liable  to  the  law- 
ful holder  of  the  bill  of  lading  for  any  loss,  damage  or  in- 
jury to  the  property  caused  by  any  carrier  over  whose  lines 
the  shipment  might  pass.  The  carrier  issuing  the  bill  of 
lading  was  entitled  to  recover  from  the  carrier  on  whose 
line  the  damage  was  caused. 

The  Elkins  Act  against  discrimination  was  strengthened 
by  adding  an  amendment  providing  that  any  shipper  receiv- 
ing a  rebate  of  any  kind  from  a  carrier  should,  for  that 
practice,  forfeit  to  the  Federal  Government  a  sum  equal 
to  three  times  the  amount  received  in  the  form  of  rebates 
during  a  period  of  six  years  previous  to  the  beginning 
of  the  action. 

The  most  important  and  significant  features  of  the  Hep-V 
burn  amendment  were  the  provisions  relating  to  the  Inter- 
state Commerce  Commission.  The  membership  of  this 
body  was  increased  from  five  to  seven,  with  the  provision 
that  not  more  than  four  should  be  of  the  same  political 
party,  the  term  of  office  was  changed  from  six  to  seven 
years,  the  annual  salary  of  each  member  fixed  at  $10,000, 
and  the  powers  and  duties  of  the  commission  were  greatly 
extended. 


i72  RAILROAD  TRANSPORTATION 

The  leading  change  with  respect  to  the  powers  of  the  com- 
mission was  that  it  received  the  rate  making  authority, 
which  it  had  been  denied  under  the  law  of  1887,  by  the 
decision  of  the  Supreme  Court  in  the  Maximum  Freight 
Rate  case.  By  section  fifteen  of  the  law,  as  revised  in  1906, 
the  commission  was  authorized,  when,  after  full  hearing 
upon  a  complaint,  it  should  be  of  the  opinion  that  any 
rates  or  charges  or  any  regulations  or  practices  affecting 
charges  were  "unjust  or  unreasonable  or  unjustly  dis- 
criminatory, or  unduly  preferential  or  prejudicial  or  other- 
wise in  violation  of  any  of  the  provisions  of  this  Act"  to 
"determine  and  prescribe"  just  and  reasonable  rates,  regula- 
tions and  practices  to  be  thereafter  observed  by  the  offend- 
ing carrier.  It  was  stipulated  that  rates  and  fares  so  de- 
termined should  be  the  maximum  rates  and  fares  which  the 
railroad  might  charge.  The  commission  was  also  authorized 
to  establish  through  routes  and  joint  rates,  to  prescribe 
the  division  of  such  rates,  and  to  fix  the  compensation  to 
be  paid  by  a  carrier  to  shippers  who,  as  owners  of  property 
transported,  should  assist  in  its  transportation  by  render- 
ing service  of  any  kind  or  by  furnishing  equipment  for  the 
use  of  the  carrier. 

Of  almost  equal  importance  with  the  provision  authorizing 
the  commission  to  issue  orders  fixing  maximum  rates  was 
the  provision  declaring  that  all  orders  of  the  commission, 
except  those  for  the  payment  of  money,  "shall  take  effect 
within  such  reasonable  time,  not  less  than  thirty  days,  and 
shall  continue  in  force  for  such  period  of  time,  not  ex- 
ceeding two  years,  as  shall  be  prescribed  in  the  order  of 
the  Commission,  unless  the  same  shall  be  suspended  or 
modified  or  set  aside  by  the  Commission,  or  be  suspended 
or  set  aside  by  a  court  of  competent  jurisdiction."  Failure 
to  comply  with  orders  of  the  commission  with  respect  to 
rates  which  were  not  set  aside  by  judicial  proceedings 
was  made  punishable  by  a  fine  of  $5,000  for  each  offence, 


FEDERAL  LEGISLATION,  1903-1914       473 

and  in  case  of  continuing  violation  it  was  stipulated  that 
each  day  should  be  a  separate  offense.  Under  these  pro- 
visions the  carriers  could  no  longer  ignore  the  orders  of 
the  commission  without  fear  of  penalty,  and  the  burden  of 
initiating  the  litigation  to  test  the  validity  of  the  commis- 
sion's orders  was  in  effect  shifted  to  the  carrier— a  decided 
improvement  over  the  provisions  of  the  act  of  1887,  which 
required  the  commission  to  initiate  judicial  proceedings 
before  it  could  secure  enforcement  of  its  orders.  It  was 
provided,  however,  that  if  a  carrier  failed  or  neglected  to 
obey  any  order  of  the  commission,  other  than  for  the  pay- 
ment of  money,  the  commission  might  apply  to  a  Circuit 
Court  for  a  writ  of  injunction  or  other  process  to  compel 
obedience,  and  that  the  court  should  enforce  the  commis- 
sion's order  if  after  hearing  it  should  appear  that  the  order 
had  been  "regularly  made  and  duly  served." 

Another  great  advance  in  regulation  was  made  in  the 
Hepburn  Act  by  conferring  upon  the  Interstate  Commerce 
Commission  the  power  to  prescribe  a  uniform  system  of 
accounts  for  railroads  engaged  in  interstate  commerce.  It 
was  made  unlawful  for  the  carriers  to  keep  accounts  in  any 
form  other  than  that  prescribed  by  the  commission,  or  to  de- 
stroy, mutilate  or  falsify  their  records.  To  make  it  pos- 
sible for  the  commission  to  secure  uniformity  in  account- 
ing it  was  authorized  to  employ  special  agents  and  examiners 
to  inspect  all  accounts  and  records  of  the  carriers.  The  com- 
mission was  also  authorized  to  require  from  the  carriers, 
in  addition  to  the  customary  annual  reports,  monthly  re- 
ports of  earnings  and  expenses,  and  periodical  and  special 
reports  concerning  any  matters  about  which  the  commis- 
sion was  required  by  law  to  keep  informed.  By  this  sec- 
tion of  the  law,  publicity  of  railway  operations  was  secured, 
which  has  afforded  a  measure  of  protection  to  the  invest- 
ing public  and  assistance  to  the  commission  in  exercising 
its  rate  making  functions,  while  the  railroads  themselves 


474  RAILROAD  TRANSPORTATION 

have  been  able  to  practice  the  economies  made  possible 
by  the  scrutiny  and  comparison  of  well-kept  standardized 
accounts. 

One  of  the  chief  problems  with  which  Congress  was 
forced  to  wrestle  in  the  preparation  of  the  Hepburn  Act 
was  that  of  judicial  review  of  the  commission's  orders. 
Should  the  courts  be  permitted  to  exercise  the  power  of 
"broad  review,"  that  is,  to  base  their  decisions  not  only 
upon  the  law  but  also  on  their  interpretation  of  the  facts 
presented  in  the  evidence,  or  should  they  be  confined  solely 
to  the  consideration  of  questions  of  law?  No  agreement 
could  be  reached  as  to  how  the  power  of  the  courts  should 
be  stated,  and  in  fact  it  was  doubted  whether  Congress  had 
authority  to  limit  or  define  in  any  way  the  power  of  the 
Federal  judiciary.  The  Constitution  provides  that  the 
"judicial  power"  of  the  United  States  "shall  extend  to  all 
Cases,  in  Law  and  Equity,  arising  under  this  Constitution, 
the  Laws  of  the  United  States.  .  .  ."  Congress  can  create 
or  abolish  Federal  courts,  other  than  the  Supreme  Court, 
and  can  define  the  field  of  jurisdiction  of  the  courts  which 
it  creates,  but  whether  Congress  may  determine  the  extent 
to  which  the  judiciary  may  consider  facts  in  determining 
causes  in  equity,  and  particularly  in  suits  involving  in- 
junctions, is  a  different  matter.  The  result  of  the  contro- 
versy in  Congress  was  that  nothing  was  stated  in  the  Hep- 
burn Act  concerning  the  grounds  upon  which  the  courts 
might  base  their  decisions  when  reviewing  the  orders  of  the 
commission.  Authority  was  expressly  given  to  Circuit 
Courts  of  the  United  States  to  annul,  suspend,  or  set  aside 
orders  of  the  commission,  but  it  was  provided  that  no 
injunction  should  be  issued  restraining  the  enforcement  of 
an  order  except  on  hearing  after  five  days'  notice  to  the  com- 
mission. 

The  provisions  of  the  Expediting  Act  of  1903,  which  were 
previously  applicable  only  in  suits  in  which  the  Government 


FEDERAL  LEGISLATION,  1903-1914        475 

was  the  complainant,  were  now  made  applicable  to  suits 
brought  to  set  aside  orders  of  the  commission,  including 
hearings  on  applications  for  a  preliminary  injunction,  and  to 
proceedings  in  equity  to  enforce  any  order  or  requirement 
of  the  commission.  With  the  assurance  that  the  commis- 
sion should  be  notified  of  applications  for  restraining  orders 
and  that  hearings  should  be  held  before  at  least  three  judges 
within  as  short  time  as  possible  after  suits  were  filed,  it 
was  certain  that  neither  delay  nor  overhasty  action  would 
take  place  in  the  judicial  investigations  of  the  commis- 
sion's orders.  In  case  of  appeal  from  a  decree  of  the 
Circuit  Court  to  the  Supreme  Court,  the  cause  was  to  take 
precedence  over  all  other  causes  except  criminal  causes. 
Appeals  from  interlocutory  decrees  granting  or  continuing 
injunctions  were  to  be  made  within  30  days  instead  of  60, 
and  were  to  have  precedence  over  all  other  causes  except 
causes  of  a  similar  character  and  criminal  causes.  Another 
clause  of  the  new  law,  intended  to  facilitate  more  speedy 
action  in  judicial  procedure,  authorized  the  commission, 
in  making  its  written  report  on  any  investigation,  to  state 
its  conclusions  and  order  "in  the  premises,"  except  in  cases 
where  damages  were  awarded,  when  it  was  necessary  that 
the  report  should  include  all  findings  of  fact  on  which 
the  award  was  made.  It  was  no  longer  necessary  in  event 
of  appeal  from  orders  not  involving  damage  awards  for  the 
commission  to  prepare  a  prima  facie  case  with  all  the  evi- 
dence set  forth. 

Though  the  act  of  1906  did  not  specify  the  grounds 
upon  which  the  Federal  courts  could  annul  the  orders  of 
the  commission,  the  courts  have,  in  practice,  confined  their 
activities  to  a  consideration  of  the  law,  leaving  unquestioned 
the  commission's  findings  as  to  facts  which  are  based  on  the 
evidence  presented  in  the  hearings  before  the  commission. 
It  was  clearly  the  intention  of  Congress  that  the  commis- 
sion was  to  be  considered  as  a  competent  and  effective  ad- 


476  RAILROAD  TRANSPORTATION 

ministrative  board,  whose  orders  should  have  the  same 
standing  as  legislative  enactments,  as  long  as  they  were 
confined  to  the  field  in  which  the  commission  was  by  the 
statute  authorized  to  act.  That  is,  it  was  clearly  intended 
that  the  orders  of  the  commission  should  be  set  aside  only 
when  the  commission  had  exceeded  its  statutory  powers 
or  when  the  orders  were  in  conflict  with  the  Constitution. 
The  attitude  of  the  Supreme  Court  on  the  question  of 
judicial  review  has  been  best  set  forth  in  the  Illinois  Central 
Railroad  case  (215  U.  S.  452,  470),  in  which  the  language  of 
the  court  was  as  follows  : 

Beyond  controversy,  in  determining  whether  an  order  of 
the  Commission  shall  be  suspended  or  set  aside,  we  must  con- 
sider (a)  all  relevant  questions  of  constitutional  power  or  right; 
(b)  all  pertinent  questions  as  to  whether  the  administrative  order 
is  within  the  scope  of  the  delegated  authority  under  which  it 
purports  to  have  been  made;  and  (c)  a  proposition  which  we 
state  independently,  although  in  its  essence  it  may  be  con- 
tained in  the  previous  one,  viz.,  whether,  even  although  the 
order  be  in  form  within  the  delegated  power,  nevertheless  it 
must  be  treated  as  not  embraced  therein,  because  the  exertion  of 
authority  which  is  questioned  has  been  manifested  in  such  an 
unreasonable  manner  as  to  cause  it,  in  truth,  to  be  within  the 
elementary  rule  that  the  substance,  and  not  the  shadow,  de- 
termines the  validity  of  the  exercise  of  the  power.  Postal  Tele- 
graph Cable  Co.  v.  Adams,  155  U.  S.  688,  698.  Plain  as  it  is 
that  the  powers  just  stated  are  of  the  essence  of  judicial 
authority,  and  which,  therefore,  may  not  be  curtailed,  and 
whose  discharge  may  not  be  by  us  in  a  proper  case  avoided, 
it  is  equally  plain  that  such  perennial  powers  lend  no  support 
whatever  to  the  proposition  that  we  may,  under  the  guise  of 
exerting  judicial  power,  usurp  merely  administrative  func- 
tions by  setting  aside  a  lawful  administrative  order  upon  our 
conception  as  to  whether  the  administrative  power  has  been 
wisely  exercised.  Power  to  make  the  order  and  not  the  mere 
expedience  or  wisdom  of  having  made  it,  is  the  question. 


FEDERAL  LEGISLATION,  1903-1914       477 

The  Supreme  Court  therefore  refuses  to  consider  or 
interpret  the  facts  at  issue  merely  in  order  to  arrive  at  a 
conclusion  as  to  the  "wisdom  or  expediency"  of  the  com- 
mission's orders,  but  considers  them  only  when  necessary 
to  do  so  in  determining  the  legality  of  the  orders.  As  the 
court  stated  in  the  Los  Angeles  Switching  case  (234  U.  S. 
294),  the  conclusions  of  fact  of  the  commission,  when 
based  upon  evidence,  are  not  open  to  review,  and  the  court 
will  not  "substitute  its  judgment  for  that  of  the  Commis- 
sion upon  matters  of  fact  within  the  Commission's  province." 
As  to  the  former  practice  of  the  courts  in  admitting  new 
evidence,  even  had  the  dictum  of  the  Supreme  Court  on  this 
point  in  the  Social  Circle  case  not  been  observed,  the  fact 
that  the  commission's  orders  became  binding  automatically, 
unless  set  aside  by  a  Federal  court,  was  sufficient  to  induce 
the  railroads  to  present  their  case  in  as  complete  form  as 
possible  in  the  hearing  before  the  commission  and  not 
to  wait  until  the  case  reached  the  courts  to  give  the  im- 
portant features  of  their  defense. 

While  the  Hepburn  amendment  went  a  long  way  toward 
correcting  the  defects  of  the  act  of  1887,  still  other  changes 
in  the  law  were  deemed  advisable,  and  in  19 10  the  Mann- 
Elkins  amendment  was  passed,  extending  the  powers  of 
the  Interstate  Commerce  Commision,  altering  the  procedure 
in  judicial  review  of  the  commission's  orders,  and  making 
other  important  changes. 

A  radical  addition  to  the  power  of  the  commission  was  \ 
made  by  vesting  that  body  with  authority  to  suspend  changes 
in  railway  rates.  It  was  stipulated  that  whenever  a  carrier 
should  file  with  the  commission  any  schedule  stating  a  new 
rate  or  fare,  or  classification  or  practice  affecting  rates  or 
fares,  the  commission  might,  either  upon  its  own  initiative 
or  upon  complaint,  enter  upon  an  investigation  of  the  rea- 
sonableness of  the  proposed  change,  and,  pending  the  in- 
vestigation, might  suspend  the  new  schedule  for  a  period 


478  RAILROAD  TRANSPORTATION 

of  not  more  than  120  days  beyond  the  time  when  the 
schedule  would  otherwise  become  effective.  If  the  hearing 
could  not  be  concluded  within  the  original  period  of  sus- 
pension (120  days),  the  time  of  suspension  might  be  ex- 
tended for  a  further  period,  not  exceeding  six  months.  After 
full  hearing,  whether  completed  before  or  after  the  change 
went  into  effect,  the  commission  might  make  such  order  in 
reference  to  the  fare,  rate,  or  classification  as  would  be 
proper  in  a  proceeding  initiated  after  the  change  became 
effective.  It  was  stipulated  that  at  any  hearing  involving  a 
rate  increased  after  January  1,  1910,  or  a  rate  sought  to  be 
increased  after  the  enactment  of  the  law,  the  burden  of  proof 
to  show  that  the  increased  rate  or  proposed  increased  rate 
was  just  and  reasonable  should  be  upon  the  carrier.  It  was 
by  this  provision  of  the  law  that  the  railroads  of  the  eastern 
part  of  the  United  States  were  prevented  in  1910  and  again 
in  1913  from  increasing  their  rates.  The  discretionary 
power  of  the  commission  was  enormously  increased  and  its 
control  over  interstate  rates,  with  respect  to  increases,  at 
least,  was  rendered  virtually  absolute. 

Another  noteworthy  feature  of  the  law  of  19 10  was  the 
revision  of  the  long  and  short  haul  clause  contained  in  the 
fourth  section  of  the  Interstate  Commerce  Act.  It  will 
be  remembered  that  this  clause,  as  expressed  in  the  act  of 
1887,  had  been  of  but  little  effect  because  of  the  interpreta- 
tion by  the  courts  of  the  words  "under  substantially  similar 
circumstances  and  conditions."  These  words  were  now 
removed,  and  carriers  were  prohibited  from  charging  more 
for  a  shorter  than  for  a  longer  haul  over  the  same  line  and 
in  the  same  direction,  the  shorter  being  included  within  the 
longer  distance,  unless  they  were  expressly  authorized  to  do 
so  by  the  commission.  Two  other  minor  changes  were 
made  in  the  fourth  section :  carriers  were  forbidden  to 
charge  a  greater  compensation  as  a  through  rate  than  the 
aggregate  of  the  intermediate  rates  over  the  same  line  or 


FEDERAL  LEGISLATION,  1903-1914        479 

route;  and  railroads  reducing  rates  at  any  time  because  of 
water  competition  were  forbidden  to  raise  such  rates  again, 
unless,  after  a  hearing  before  the  commission,  it  could  be 
shown  that  the  proposed  increase  rested  upon  changed  con- 
ditions other  than  the  elimination  of  water  competition. 

The  third  leading  feature  of  the  Mann-Elkins  Act  was  the 
creation  of  a  special  Commerce  Court  to  hear  ( i )  suits 
brought  to  enforce  the  orders  of  the  Interstate  Commerce 
Commission,  other  than  for  the  payment  of  money,  (2) 
suits  brought  to  set  aside  orders  of  the  commission,  (3) 
cases  involving  the  provisions  of  the  Elkins  Act  of  1903 
concerning  rebates  and  departures  from  published  tariffs, 
and  (4)  proceedings  concerning  the  enforcement  of  the 
orders  of  the  commission  with  regard  to  accounts,  the  move- 
ment of  traffic  and  the  providing  of  facilities.  The  new 
court  was  to  be  composed  of  five  judges  designated  by  the 
Chief  Justice  of  the  Supreme  Court  from  among  the  cir- 
cuit judges  of  the  United  States,  each  to  serve  for  five  years, 
except  that  in  the  first  instance  the  court  was  to  consist  of 
five  additional  circuit  judges  whom  the  President  should 
appoint  and  who  should  serve  one,  two,  three,  four  and 
five  years,  respectively,  as  the  President  should  designate. 
It  was  stipulated  that  after  1914  no  judge  should  be  reap- 
pointed to  the  court  until  the  expiration  of  at  least  one  year 
after  the  conclusion  of  a  previous  term  of  service.  It  was 
hoped  that  the  new  court  would  not  only  bring  about  more 
expeditious  action  in  the  suits  it  was  authorized  to  try, 
but  that  it  would  conduce  to  a  greater  degree  of  specializa- 
tion in  its  field  of  jurisdiction.  In  theory,  at  least,  the  court 
was  a  highly  desirable  addition  to.  the  machinery  for  Fed- 
eral railway  regulation.  Unfortunately,  the  court,  as  orig- 
inally constituted,  met  with  general  disfavor,  and  in  Octo- 
ber 1913  it  was  abolished  and  its  duties  assigned  to  the 
Federal  district  courts. 

While  the  three  features  of  the  Mann-Elkins  law  just 


480  RAILROAD  TRANSPORTATION 

described  constituted  the  chief  modifications  of  the  Inter- 
state Commerce  Act  set  forth  in  that  law,  several  other 
provisions  of  minor  significance  were  included.  Among  the 
more  important  of  these  were  the  following:  (i)  the  law 
was  made  to  apply  to  telegraph  and  telephone  companies ; 
(2)  the  commission  was  authorized  to  fix  maximum  rates, 
after  hearings  held  upon  its  own  motion,  as  well  as  after 
hearings  held  upon  complaint;  (3)  the  commission  was 
given  the  power  to  establish  and  enforce  the  reasonable 
classification  of  freight;  (4)  it  was  provided  that  upon  writ- 
ten request  to  its  agent  a  carrier  must,  upon  penalty  of  fine, 
give,  within  a  reasonable  time,  a  written  statement  of  the 
rate  applicable  to  a  described  shipment  between  stated 
points;  (5)  the  shipper  was  given  the  right  to  designate  the 
through  route  over  which  his  property  should  be  trans- 
ported; (6)  each  carrier  subject  to  the  provisions  of  the 
law  was  required  to  designate  in  writing  an  agent  in  Wash- 
ington, upon  whom  could  be  served  all  notices  and  orders 
of  the  commission;  (7)  it  was  provided  that  all  cases  and 
proceedings  which  formerly  would  have  been  brought  by 
or  against  the  Interstate  Commerce  Commission  should  be 
brought  by  or  against  the  United  States.  The  conduct  of 
the  prosecution  or  defense  of  the  commission's  cause  in  suits 
involving  appeals  from  the  commission's  orders  thus  became 
the  duty  of  the  Department  of  Justice.  Provision  was  made 
for  the  employment  of  special  counsel  by  the  Department 
of  Justice,  and  the  commission  and  other  interested  parties 
were  given  the  right  to  intervene  in  all  cases;  (8)  the  Presi- 
dent was  authorized  to  appoint  a  commission  to  investigate 
questions  pertaining  to  the  issuance  of  stocks  and  bonds  by 
railroad  corporations.  The  report  of  this  commission, 
known  as  the  Hadley  Commission,  from  its  chairman,  Arthur 
T.  Hadley,  President  of  Yale  University,  was  briefly  dis- 
cussed in  Chapter  VIII. 

Between  icjioand  191 5  Congress  has  made  several  amend- 


FEDERAL  LEGISLATION,  1903-1914        481 

ments  to  the  Interstate  Commerce  Act.  In  the  Panama  Ca- 
nal Act  of  August  24,  191 2,  it  was  made  unlawful,  after 
July  1,  1914,  for  any  railroad  company  or  other  common 
carrier  subject  to  the  act  to  own,  lease,  operate,  control  or 
have  any  interest  in  common  carriers  by  water  or  any  vessel 
carrying  freight  or  passengers,  operating  through  the  Pan- 
ama Canal  or  elsewhere  "with  which  said  railroad  or  other 
carrier  aforesaid  does  or  may  compete  for  traffic."  Juris- 
diction was  conferred  upon  the  Interstate  Commerce  Com- 
mission to  determine  questions  of  fact  as  to  the  competition 
or  the  possibility  of  competition,  and  its  decision  in  all  cases 
was  to  be  final.  The  commission  was  authorized  to  permit 
the  continuance  of  railroad  ownership  of  competing  vessel 
lines,  operated  elsewhere  than  through  the  Panama  Canal, 
if  it  should  be  of  the  opinion  that  the  service  was  being  op- 
erated in  the  interest  of  the  public  and  that  the  continuance 
of  ownership  would  not  prevent  or  reduce  competition  on 
the  water  route  under  consideration.  Several  orders  have 
been  made  by  the  commission  under  the  amendment,  the 
most  important  one  being  that  requiring  the  leading  eastern 
trunk  line  railroads  to  dispose  of  their  vessel  lines  on  the 
Great  Lakes. 

By  the  act  of  August  24,  1912,  the  commission  was  also 
given  authority  to  require  the  connection  of  rail  and  water 
carriers,  where  such  connection  would  be  reasonably  prac- 
ticable; to  establish  through  routes  and  maximum  joint  rates 
over  rail  and  water  lines ;  to  establish  maximum  propor- 
tional railroad  rates  to  and  from  ports ;  and  to  order  any 
railway,  entering  into  arrangements  with  a  carrier  by 
water  operating  from  any  port  in  the  United  States  for  han- 
dling through  business  between  an  interior  point  in  the 
United  States  and  a  foreign  country,  to  enter  into  similar 
arrangements  with  any  or  all  other  steamship  lines  operat- 
ing from  that  port  to  the  same  foreign  country.  It  was 
hoped  by  these  provisions  to  make  it  impossible  for  the  rail- 


482  RAILROAD  TRANSPORTATION 

ways  to  prevent,  by  discriminatory  practices,  the  develop- 
ment and  growth  of  water  transportation. 

On  March  i,  1913,  a  new  section,  Number  19a,  was  added 
to  the  Interstate  Commerce  Act  requiring  the  Interstate 
Commerce  Commission  to  ascertain  and  report  the  value  of 
all  the  property  owned  or  used  by  all  common  carriers  sub- 
ject to  the  law.  The  commission  was  directed  to  make  a 
classified  inventory  of  all  the  physical  property  of  the  car- 
riers ;  to  ascertain  the  original  cost,  the  cost  of  reproduction 
new,  and  the  cost  of  reproduction  less  depreciation  of  each 
piece  of  property ;  to  report  in  detail  the  original  cost  and 
present  value  of  all  real  property ;  to  investigate  and  report 
upon  the  history  and  organization  of  the  present  or  any  pre- 
vious corporations  operating  the  property,  giving  a  full 
statement  of  their  stock  and  bond  issues,  of  the  financial 
arrangements  by  which  the  securities  were  marketed,  and 
of  the  earnings  and  expenditures ;  to  ascertain  the  amount 
and  value  of  all  grants  and  donations  received  by  the  carriers 
from  all  sources  and  the  amount  of  money  received  by  the 
carriers  from  the  sale  of  land  grants  made  by  the  United 
States  or  by  any  State,  county,  or  municipal  government. 
The  carriers  were  directed  to  furnish  the  commission  with 
all  maps,  documents  and  papers  necessary  for  the  work  of 
valuation  and  to  give  to  the  agents  of  the  commission  free 
access  to  all  their  property.  It  was  also  provided  that  after 
the  completion  of  the  initial  valuations  the  commission 
should  keep  itself  informed  of  all  extensions,  improvements 
and  other  changes  of  the  property  of  the  carriers  and  should 
from  time  to  time  revise  and  correct  its  valuations.  The 
World  War  caused  a  partial  suspension  of  the  work  of  val- 
uation, and  so  far  the  commission  has  reported  a  tentative 
valuation  of  only  a  few  roads.  When  the  valuation  is  com- 
pleted the  results  should  be  of  great  value  to  railway  com- 
missioners and  courts  in  solving  many  of  the  problems  of 
railway    regulation.      Questions    concerning   capitalization, 


FEDERAL  LEGISLATION,  1903-1914       483 

taxation,  rates,  and  accounting  practices  can  be  much  more 
readily  determined  by  the  use  of  the  results  which  the  val- 
uation of  the  railways  will  disclose. 

The  foregoing  paragraphs  describe  the  chief  provisions 
of  the  Interstate  Commerce  Act  as  it  stood  at  the  end  of 
1914.  In  addition  to  this  important  law  several  other  stat- 
utes enacted  by  Congress  applied  directly  to  the  railroad 
business.  Some  of  these  acts  concerned  the  railways 
merely  because  the  laws  were  of  general  application  to 
corporations  engaged  in  interstate  commerce,  others  con- 
tained provisions  having  direct  reference  to  the  manage- 
ment of  the  railways,  and  others  had  for  their  purpose  the 
regulation  of  certain  phases  of  railway  operation  and  of 
the  relations  between  the  railroad  companies  and  their 
employees. 

The  Sherman  Antitrust  law  of  July  2,  1890,  which  de- 
clares illegal  "every  contract,  combination  in  the  form  of 
trust  or  otherwise,  or  conspiracy,  in  restraint  of  trade  or 
commerce  among  the  several  States,  or  with  foreign  na- 
tions" was  held  to  apply  to  railroads,  and,  under  the  terms 
of  the  law,  a  number  of  railway  combinations  were  dis- 
solved by  the  Federal  courts.  By  the  Clayton  Antitrust 
Act  of  October  15,  1914,  all  corporations  "engaged  in  com- 
merce" were  forbidden  to 

acquire,  directly  or  indirectly,  the  whole  or  any  part  of  the  stock 
or  other  share  capital  of  another  corporation  engaged  also  in  com- 
merce, where  the  effect  of  such  acquisition  may  be  to  substantially 
lessen  competition  between  the  corporation  whose  stock  is  so  ac- 
quired and  the  corporation  making  the  acquisition,  or  to  restrain 
such  commerce  in  any  section  or  community,  or  tend  to  create  a 
monopoly  of  any  line  of  commerce. 

It  was  provided,  however,  that  the  law  should  not  apply  to 
corporations  purchasing  such  stock  solely  for  investment, 
and  that  it  should  not  be  construed  to  prohibit  carriers  from 


484  RAILROAD  TRANSPORTATION 

purchasing  or  aiding  in  the  construction  of  short  branch 
lines  or  feeders,  or  to  prevent  them  from  extending  any 
of  their  lines  through  stock  acquisition  in  cases  where  there 
was  no  substantial  competition  between  the  purchasing  and 
the  selling  companies.  Common  carriers  were  also  forbid- 
den, after  two  years  from  the  approval  of  the  act,  to  have 
any  dealings  in  securities,  supplies  or  other  articles,  or  to 
have  any  contracts  for  construction  or  maintenance, 

to  the  amount  of  more  than  $50,000,  in  the  aggregate,  in  any  one 
year,  with  another  corporation,  firm,  partnership,  or  association 
when  the  said  common  carrier  shall  have  upon  its  board  of  direc- 
tors, or  as  its  president,  manager,  or  as  its  purchasing  or  selling 
officer,  or  agent  in  the  particular  transaction,  any  person  who  is  at 
the  same  time  a  director,  manager,  or  purchasing  or  selling  officer 
of,  or  who  has  any  substantial  interest  in,  such  other  corporation, 
firm,  partnership  or  association, 

unless  the  transaction  should  take  place  as  the  result  of  com- 
petitive bidding  under  regulations  to  be  prescribed  by  the 
Interstate  Commerce  Commission.  This  provision  was  de- 
signed to  overcome  the  practice  which  many  railway  man- 
agers had  indulged  in  of  selling  to,  or  buying  from,  their 
railway  company,  at  very  remunerative  prices,  securities 
and  supplies  of  various  kinds.  Some  of  the  railways  in  the 
United  States  have  been  wrecked  by  such  unscrupulous  ac- 
tion by  their  directors  and  chief  officers.  The  operation  of 
this  clause  was  postponed  from  time  to  time  as  the  date  for 
its  becoming  effective  drew  near,  but  in  1921  President 
Wilson  vetoed  a  bill  for  further  postponement,  and  the 
clause  went  into  effect.  The  authority  to  enforce  compli- 
ance with  the  sections  of  the  Clayton  law  applying  to  com- 
mon carriers  is  vested  in  the  Interstate  Commerce  Com- 
mission. 

For  the  regulation  of  the  operation  of  railways,  in  order 
to  secure  a  greater  degree  of  safety  both  for  the  public  and 


FEDERAL  LEGISLATION,  1903-1914        485 

for  railway  employees,  Congress  has  passed  a  number  of 
salutary  measures.  The  use  of  automatic  couplers  and 
continuous  power  brakes  was  made  compulsory  by  the 
Safety  Appliance  Acts,  the  first  of  which  was  passed  in 
1893;  locomotive  ash-pans  which  can  be  emptied  and 
cleaned  without  the  necessity  of  the  employee  going  under 
the  locomotive  are  required  by  a  law  passed  in  1908;  an  act, 
approved  March  4,  1907,  forbids  carriers  to  permit  their 
employees,  under  ordinary  conditions,  to  be  on  continuous 
duty  for  more  than  16  hours  and  otherwise  regulates  hours 
of  service,  and  a  Federal  Employers'  Liability  law  appli- 
cable to  interstate  carriers  has  also  been  passed.  Locomo- 
tive boilers  are  inspected  by  Federal  agents  and  the  trans- 
portation of  explosives  is  also  regulated  by  law.  Railway 
companies  are  required  to  make  a  monthly  report  to  the 
Interstate  Commerce  Commission  of  all  accidents  occur- 
ring on  their  lines  which  result  in  injury  to  person,  road- 
bed, or  equipment,  and  the  commission  is  authorized  to 
investigate  all  accidents  and,  if  it  thinks  proper,  make  a 
public  report  concerning  them. 

Another  highly  important  Federal  law  concerning  rail- 
ways was  the  Erdman  Act  of  1898  (amended  in  1913  by  the 
Newlands  Act),  which  was  designed  to  prevent  railway 
strikes  by  providing  for  the  arbitration  of  controversies 
between  railway  companies  and  their  employees.  The  law 
provided  for  a  Federal  Commissioner  of  Mediation  and 
Conciliation,  to  be  named  by  the  President  with  the  con- 
sent of  the  Senate.  In  case  of  a  threatened  strike  by  rail- 
way employees,  it  was  the  duty  of  this  official,  together 
with  two  other  Government  officials,  designated  by  the 
President,  to  endeavor  to  bring  the  disputing  parties  to- 
gether and  arrange  for  an  amicable  settlement  of  their  dif- 
ferences. If  the  efforts  of  this  Board  of  Mediation  and 
Conciliation  failed,  it  endeavored  to  induce  the  parties  in 
dispute  to  agree  to  an  arbitration  of  their  differences  by 


486  RAILROAD  TRANSPORTATION 

a  regularly  appointed  board  of  arbitrators.  This  law  was 
used  successfully  on  several  occasions  to  avert  threatened 
railroad  strikes. 

The  Federal  railroad  laws  enacted  between  1903  and 
1914  represented  a  great  advance  over  the  initial  attempts 
at  regulation  under  the  statute  of  1887.  The  Interstate 
Commerce  Commission  brought  about  the  establishment  of 
reasonable  rates  in  many  instances,  and  it  corrected  a  very 
large  number  of  unfair  discriminations  in  published  rates. 
Obscure  methods  of  granting  rebates  and  other  forms  of 
preferential  treatment  were  occasionally  discovered,  but 
they  were  promptly  dealt  with  and  the  offenders  punished. 
By  the  abolition  of  the  free  pass  and  similar  favors  the 
railroads  were  deprived  of  a  large  measure  of  their  power 
to  exercise  undue  influence  on  government  officials  and 
other  individuals  with  political  power.  Publicity  of  ac- 
counting revealed  to  the  public  and  to  stockholders  the 
various  operations  of  railway  managers. 

While  the  system  of  railroad  regulation  devised  between 
1903  and  1910  was  productive  of  much  good,  it  had  cer- 
tain results  which  were  of  doubtful  benefit,  and  certain  re- 
sults which  were  actually  harmful  to  the  transportation 
business  of  the  country.  Several  weaknesses  in  the  meth- 
ods of  regulation  developed  during  the  seven  years  follow- 
ing 1910.  The  increased  activity  of  the  States  in  regulat- 
ing railroads  served  to  emphasize  more  strongly  the 
problems  involved  in  the  dual  system  of  control  by  State 
and  Federal  authority.  The  failure  of  Congress  to  per- 
mit the  railroads  openly  to  cooperate  with  one  another  in 
making  rates  helped  to  keep  alive  a  competition  in  serv- 
ice which  in  many  instances  reduced  the  efficiency  of  the 
transportation  agencies.  The  lack  of  uniform  regulation 
of  the  financial  operations  of  railroad  corporations  left  the 
way  open  for  unscrupulous  railroad  financiers  to  under- 
mine the  financial  strength  of  prosperous  companies.   Prob- 


FEDERAL  LEGISLATION,  1903-1914       487 

ably  the  chief  weakness  of  the  entire  system  of  regulation 
was  that  its  chief  result  was  to  create  an  administrative 
machinery  which  functioned  with  effectiveness  and  despatch 
only  to  reduce  rates  or  to  prevent  rates  from  being  ad- 
vanced. It  did  not  seem  to  occur  to  Congress  or  to  State 
legislatures  that  it  would  ever  be  necessary  for  the  rail- 
roads to  increase  their  charges  and  increase  them  quickly. 
Virtually  all  railroad  statutes,  State  and  Federal,  were  of 
a  restrictive  character ;  no  laws  were  passed  with  the  pur- 
pose of  extending  aid  to  the  carriers  in  time  of  emergency. 
It  was  thought  in  1910,  after  the  Mann-Elkins  law  was 
enacted,  that  the  railroad  problem  of  the  United  States  was 
finally  "solved."  Yet  five  years  later  there  was  almost 
universal  dissatisfaction  with  the  conditions  of  the  railroad 
business.  Railroad  managers  were  complaining  of  inade- 
quate revenues,  shippers  were  protesting  against  inferior 
and  insufficient  service,  railroad  labor  was  threatening  to 
strike  for  higher  wages  and  shorter  hours  of  work,  in- 
vestors in  railroad  securities,  fearful  for  the  safety  of 
existing  investments,  refused  to  supply  the  capital  needed 
for  railroad  expansion.  There  was  a  widespread  demand 
for  a  radical  modification  of  the  railroad  policy  of  the 
Government.  Before  legislation  of  a  constructive  nature 
could  be  framed  and  enacted  the  United  States  entered  the 
World  War.  In  less  than  a  year  after  the  declaration  of 
war  the  whole  system  of  private  operation  and  government 
regulation  was  discarded,  and  the  Government  assumed  the 
burden  of  operating  the  railroads.  It  was  not  until  after 
the  war  ended  that  a  new  program  of  railroad  control 
could  be  adopted. 

REFERENCES 

Interstate  Commerce  Commission.     The  Act  to  Regulate  Com- 
merce and  Acts  Supplementary   Thereto    (1915). 


488  RAILROAD  TRANSPORTATION 

Ripley,  W.  Z.  Railroads:  Rates  and  Regulation,  chaps,  xv- 
xx  (1912). 

Sharfman,  I.  L.     Railway  Regulation,  chap,  x    (1915). 

Dixon,  F.  H.  "The  Interstate  Commerce  Act  as  Amended," 
in  Quarterly  Journal  of  Economics,  XXI,  pp.  22-49,  1906. 

Smalley,  H.  S.  "Rate  Control  under  the  Amended  Interstate 
Commerce  Act,"  in  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XXIX,  pp.  292-309,  1907. 

• .  "Railroad  Rate  Control,"  in  Publications  of  the  Ameri- 
can Economic  Association,  3d  Series,  VII,  No.  2,  1905. 

Young,  James  T.  The  New  American  Government  and  Its 
Work,  chap,  vi  (191 5). 


CHAPTER  XXVIII 
NEW  RAILROAD  PROBLEMS  ;  GOVERNMENT  OPERATION 


K 


lecline  of  earnings,  489.  Railroad  bankruptcies,  492.  The  Adam- 
son  Act,  494.  Effects  of  the  war,  496.  Government  control,  504. 
The  Railroad  Administration,  505.  Operating  results,  509. 
Financial  results,  510.    References,  511. 

The  principal  cause  of  the  railroad  difficulties  following 
1910  was  the  steady  advance  in  the  costs  of  railroad  opera- 
tion without  a  proportionate  increase  in  railroad  earnings. 
The  reason  for  the  increase  of  operating  costs  was  the 
general  rise  in  prices,  which  began  about  1897  and  did  not 
end  until  1920.  All  the  supplies  and  equipment  used  by  rail- 
roads— fuel,  lumber,  steel,  rolling  stock,  electric  equipment 
— advanced  in  price  with  other  commodities,  and  the  rising 
cost  of  living  throughout  the  United  States  made  it  neces- 
sary for  railroad  corporations  to  raise  the  wages  of  their 
employees.  Unfortunately  the  gross  receipts  of  the  carriers 
did  not  expand  rapidly  enough  to  yield  favorable  net  rev- 
enues. This  was  due  in  part  to  the  comparatively  slow 
growth  of  railway  traffic  during  the  four  years  following 
1910  and  in  part  to  the  failure  of  Federal  and  State  regu- 
lating authorities  to  permit  the  carriers  to  put  into  effect 
any  substantial  increase  of  freight  rates. 

In  1910  the  railroads  in  Official  Classification  territory 
and  the  roads  in  Western  Trunk  Line  territory  endeavored 
to  obtain  a  10  per  cent  advance  in  freight  rates,  but  the 
Interstate  Commerce  Commission  prevented  the  proposed 
increases  from  taking  effect.  In  justification  of  the  Com- 
mission's decision  it  may  be  said  that  the  year  1910  was  on 
the  whole  a  highly  prosperous  year  for  the  carriers.  Traffic 
was  unusually  heavy  and  the  average  net  operating  revenue 
per  mile  of  line  of  all  railroads,  amounting  to  $3,895,  was 
considerably  higher  than  for  any  previous  year. 

489 


490  RAILROAD  TRANSPORTATION 

In  191 1  the  volume  of  railroad  traffic  was  not  so  large 
as  in  1910,  and  as  a  result  the  net  revenues  of  the  railroads 
were  almost  $100,000,000  less.  In  1912  there  was  a  partial 
recovery  of  railroad  traffic  but  a  further  increase  of  oper- 
ating expenses.  The  enginemen  of  52  eastern  railroads 
demanded  an  increase  of  wages.  A  threatened  strike  was 
averted  by  an  arbitration  agreement.  While  the  arbitrators 
did  not  give  the  enginemen  all  they  demanded  they  recog- 
nized the  justice  of  their  claim  for  additional  compensation 
and  awarded  them  a  substantial  increase.  The  firemen  and 
trainmen  of  the  eastern  railroads  likewise  demanded  more 
pay,  and  in  1913,  arbitration  boards  rendered  decisions  in 
favor  of  both  groups  of  workmen,  the  award  to  the  firemen 
being  published  in  April  and  that  to  the  trainmen  in 
November. 

The  financial  burdens  of  the  eastern  railroads  were  made 
heavier  not  only  by  the  large  expenditures  for  labor  and 
supplies,  but  also  by  the  heavy  fixed  charges.  Huge  sums 
of  money  were  expended  by  virtually  all  the  larger  eastern 
roads  in  constructing  improved  terminal  facilities,  and  in 
many  instances  the  improvements  were  of  a  kind  that 
yielded  little  or  no  additional  revenue.  The  costly  passen- 
ger terminals  built  in  New  York  by  the  Pennsylvania  and 
the  New  York  Central  added  greatly  to  the  financial  obli- 
gations of  both  systems,  and  increased  their  earning  power 
but  slightly.  The  entire  railroad  system  of  the  country 
showed  declining  net  revenues  in  1912,  and  the  showing 
of  the  roads  in  Official  Classification  territory  was  partic- 
ularly unfavorable. 

In  May,  191 3,  the  eastern  lines  filed  tariffs  with  the  Inter- 
state Commerce  Commission  providing  for  a  general  in- 
crease in  freight  rates,  the  increases  varying  from  3  to  50 
per  cent  on  different  articles,  and  averaging  about  5  per 
cent.  The  Commission  suspended  the  new  schedule  and 
undertook  an  investigation  as  to  the  reasonableness  of  the 


GOVERNMENT  OPERATION  491 

proposed  changes.  A  formal  decision  was  not  reached  un- 
til late  in  July,  1914.  While  conceding  that  there  was  "a 
tendency  toward  a  diminishing  operating  income"  the  Com- 
mission refused  to  grant  all  the  changes  which  the  carriers 
desired.  It  allowed  a  5  per  cent  advance  of  class  rates  and 
of  commodity  rates  to  the  roads  in  Central  Freight  Asso- 
ciation territory,  but  it  did  not  permit  any  rate  advances  in 
Trunk  Line  and  New  England  territories.  It  suggested 
several  ways,  however,  in  which  the  carriers  in  these  dis- 
tricts might  secure  additional  revenue  without  increasing 
freight  rates.  The  Commission's  decision  was  based  largely 
upon  the  statistical  returns  for  the  fiscal  year  ending  June 
30,  1 91 3.  There  had  been  a  considerable  increase  in  the 
volume  of  traffic  during  that  year  and  though  operating 
costs  had  advanced  somewhat,  net  operating  revenues  were 
greater  than  they  had  been  in  the  preceding  year. 

Before  the  Commission  rendered  its  decision  there  had 
been  a  decided  turn  for  the  worse  in  the  railroad  business. 
The  fiscal  year  of  1914  showed  a  freight  traffic  less  by  sixty 
million  tons  than  had  been  carried  the  previous  year.  The 
increased  rates  of  wages  to  train  service  employees,  al- 
lowed by  the  arbitration  boards  in  1913,  and  higher  costs  of 
railroad  supplies  were  reflected  in  augmented  costs  of 
operation.  The  operating  ratio  for  1914  was  72.22  as  com- 
pared with  65.44  for  the  preceding  fiscal  year.  The  car- 
riers petitioned  that  the  5  per  cent  rate  case  be  reopened 
for  further  consideration.  The  petition  received  favorable 
action,  and  in  December  the  Commission  granted  the  appli- 
cation for  rate  increases  which  had  been  denied  in  July. 
It  was  estimated  that  the  new  rates  would  add  approxi- 
mately $50,000,000  to  the  annual  gross  revenues  of  the  east- 
ern roads. 

In  191 5  the  railroads  made  a  slightly  better  showing  than 
in  1914,  the  operating  ratio  receding  to  70.52.  However, 
the  outlook  in  the  transportation  business  as  a  whole  was 


492  RAILROAD  TRANSPORTATION 

anything  but  promising.  A  number  of  the  weaker  roads, 
unable  to  withstand  longer  the  adverse  conditions  against 
which  they  had  been  struggling  since  1910,  went  into  bank- 
ruptcy. At  the  same  time  several  large  systems  which  had 
once  been  highly  prosperous,  were  forced  into  receivership 
because  of  financial  mismanagement.  The  Rock  Island  and 
the  Frisco  systems,  and  several  of  the  overcapitalized  rail- 
roads of  the  Gould  system  in  the  Southwest  collapsed  under 
their  burden  of  excessive  fixed  charges.  The  Wabash,  im- 
poverished by  its  expensive  venture  of  constructing  a  ter- 
minal in  Pittsburgh,  likewise  became  bankrupt.  The  once 
prosperous  New  Haven  system,  its  liabilities  increased 
from  $93,000,000  in  1903  to  $417,000,000  in  1913,  disin- 
tegrated, bankruptcy  overtaking  a  number  of  its  constitu- 
ent lines,  and  a  receivership  for  the  main  system  being  nar- 
rowly averted.  By  October  1,  191 5,  nearly  42,000  miles 
of  railroad,  one-sixth  of  the  railway  net  of  the  United 
States,  representing  a  capitalization  of  $2,250,000,000,  had 
passed  into  the  control  of  the  courts  for  operation  by 
receivers. 

The  credit  of  the  railroads  was  so  impaired  that  it  was 
impossible  for  them  to  obtain  the  funds  needed  for  exten- 
sions and  improvements.  Railroad  construction  came  to  a 
complete  stop  and  all  thought  of  carrying  out  projects  for 
the  improvement  of  railway  facilities  was  for  the  time  be- 
ing abandoned.  President  Wilson,  in  his  annual  message 
to  Congress  in  December,  191 5,  called  attention  to  the 
plight  of  the  railroads,  and  suggested  that  Congress  create 
a  commission  "to  ascertain,  by  a  thorough  canvass  of  the 
whole  question,  whether  our  laws,  as  at  present  framed  and 
administered,  are  as  serviceable  as  they  might  be  in  the 
solution  of  the  problem."  In  answer  to  this  suggestion  Con- 
gress appointed  an  investigating  commission  to  undertake 
a  study  of  the  entire  railroad  question.  The  commission 
held  a  series  of  hearings,  but  before  it  could  formulate  a 


GOVERNMENT  OPERATION  493 

program  of  action,  the  war  brought  about  such  changes  in 
the  railroad  situation  that  it  abandoned  its  work,  not  even 
making  a  report. 

The  fiscal  year  of  1916  witnessed  a  temporary  change  for 
the  better.  The  war  in  Europe  stimulated  great  industrial 
activity  in  the  United  States,  and  the  traffic  of  the  railroads 
increased  enormously  in  volume.  The  rapid  rise  in  prices, 
which  came  as  a  result  of  the  war,  did  not  begin  until  the 
latter  part  of  1916,  and  as  a  result  the  financial  reports  of 
the  carriers  were  exceptionally  favorable.  The  operating 
ratio  for  the  year  ending  June  30,  1916,  dropped  to  65.44, 
and  the  revenue  both  gross  and  net,  was  larger  than  it  had 
been  in  any  previous  year. 

The  change,  however,  was  only  temporary.  While  the 
volume  of  traffic  and  the  amount  of  gross  revenue  contin- 
ued to  grow,  operating  costs  began  to  mount  with  much 
greater  rapidity.  The  four  great  railroad  labor  organiza- 
tions, locomotive  engineers,  engineers  and  firemen,  railway 
conductors,  and  railway  trainmen  demanded  of  the  carriers 
a  "basic"  eight-hour  day  instead  of  the  ten-hour  day  previ- 
ously in  effect,  and  overtime  pay  at  the  rate  of  time  and  a 
half.  Since  the  hours  of  train  service  could  not  easily  be 
shortened  the  demand  of  the  unions  was  merely  a  demand 
for  a  large  increase  in  pay.  Conferences  between  represen- 
tatives of  the  employers  and  of  the  employees  failing  to 
result  in  any  agreement,  the  railroad  managers  offered  to 
submit  the  controversy  to  arbitration.  The  union  leaders 
refused  to  accept  this  proposal  and  insisted  that  their  de- 
mands be  granted.  President  Wilson  invited  the  opposing 
factions  to  a  conference  at  Washington,  and  as  a  solution 
of  the  difficulty  he  proposed  that  the  eight-hour  day  be 
adopted  with  pro  rata  pay  for  overtime,  offering  to  have  a 
commission  appointed  to  study  the  results  of  the  change 
and  make  suggestions  for  whatever  measures  of  financial 
relief  might  be  found  necessary  to  enable  the  carriers  to 


494  RAILROAD  TRANSPORTATION 

meet  the  added  cost.  The  union  leaders  signified  their  will- 
ingness to  accept  the  President's  proposals.  The  railroad 
managers  refused,  and  the  union  leaders  promptly  called  a 
country-wide  railroad  strike  for  September  4. 

President  Wilson  went  before  Congress  on  August  29, 
and  recommended  that  a  law  be  enacted  providing  for  the 
eight-hour  day  for  train-service  employees.  He  also  ad- 
vised that  the  Interstate  Commerce  Commission  be  en- 
larged, that  a  commission  be  established  to  study  the  ef- 
fects of  the  eight-hour  law,  and  that  a  measure  be  enacted 
prohibiting  railroad  strikes  until  after  an  official  investiga- 
tion of  matters  in  controversy  could  be  held.  On  Septem- 
ber 2,  Congress  hastily  enacted  the  Adamson  Eight-Hour 
Act.  This  law  provided  that  the  eight-hour  day  should 
become  effective  on  January  1,  191 7,  and  created  an  inves- 
tigating commission.  The  other  recommendations  of  the 
President  were  disregarded. 

The  railroad  managers,  asserting  that  the  Adamson  Act 
was  unconstitutional,  sought  injunctions  in  the  Federal 
courts  to  prevent  the  enforcement  of  the  law.  On  Novem- 
ber 22,  Judge  Hook  of  the  United  States  District  Court  at 
Kansas  City  declared  the  law  unconstitutional,  in  order  to 
hasten  a  final  consideration  of  the  matter  by  the  Supreme 
Court.  Argument  before  the  Supreme  Court  took  place 
on  January  8,  191 7,  the  railroad  managers  having  entered 
into  an  agreement  with  the  Attorney  General  to  continue 
the  ten-hour  basic  day,  but  to  give  the  men  back  pay  due 
from  January  1  if  the  law  should  be  upheld.  The  labor 
union  leaders  refused  to  wait  for  the  decision  of  the  Su- 
preme Court.  On  March  15  they  called  a  strike  for  March 
17,  later  however  postponing  action  until  March  19.  On 
the  morning  of  the  19th,  chiefly  because  of  the  threatening 
state  of  the  international  relations  of  the  United  States, 
the  railroad  managers  decided  to  yield.  They  signified 
their  acceptance  of  the  terms  of  the  Adamson  law,  and 


GOVERNMENT  OPERATION  495 

the  strike  was  averted.  On  the  afternoon  of  the  same  day 
the  Supreme  Court  handed  down  its  decision  on  the  Eight- 
Hour  Law,  reversing  Judge  Hook's  decision,  and  declaring 
the  act  constitutional. 

Meanwhile  the  railroad  problem  had  been  further  com- 
plicated by  operating  difficulties.  The  war  in  Europe  caused 
a  greatly  enlarged  foreign  demand  for  American  food- 
stuffs, munitions,  and  various  military  supplies.  The  great 
increase  in  railroad  traffic  in  1916  had  been  caused  partly 
by  the  increased  export  trade.  Unfortunately  little  effort 
was  made  to  coordinate  the  railroad  facilities  of  the  coun- 
try and  the  facilities  for  ocean  transportation.  The  rail- 
roads reaching  the  interior  of  the  United  States  accepted 
larger  and  larger  quantities  of  export  traffic  billed  to  east- 
ern seaports.  The  activity  of  the  German  submarines  re- 
duced the  tonnage  of  ships  available  for  transatlantic  traffic, 
and  the  fact  that  the  nations  allied  against  Germany  found 
it  necessary  to  use  a  large  amount  of  tonnage  in  European 
transport  service  still  further  limited  the  shipping  services 
between  America  and  Europe.  Inadequate  shipping  caused 
the  terminals  of  eastern  railroads  to  become  congested  with 
cars  loaded  with  traffic  destined  for  Europe.  When  the 
terminals  at  the  seaports  became  overcrowded  with  cars, 
the  terminals  farther  inland  were  used  for  storage  pur- 
poses until  in  the  winter  of  1916-17  virtually  every  railroad 
terminal  east  of  the  Mississippi  River  was  congested.  Un- 
der these  conditions  the  operation  of  the  railroads  became 
exceedingly  difficult.  It  became  necessary  for  many  lines 
to  embargo  all  traffic  except  food  and  a  few  other  necessi- 
ties of  life,  and  even  these  necessities  could  be  moved  only 
with  great  difficulty.  A  great  many  of  the  loaded  cars  in 
the  eastern  terminals  belonged  to  western  roads.  As  the 
accumulation  of  cars  grew  in  the  east  the  number  of  cars 
available  for  use  on  western  roads  steadily  declined.  Even 
when  western  cars  were  unloaded  in  the  east,  the  eastern 


496  RAILROAD  TRANSPORTATION 

lines  did  not  return  them,  finding  it  to  their  advantage  to 
retain  them  for  local  service.  The  failure  of  the  eastern 
lines  to  return  promptly  the  empty  cars  belonging  to  their 
western  connections  was  a  direct  violation  of  the  car  service 
rules  of  the  American  Railway  Association.  In  an  endeavor 
to  relieve  the  situation  the  association  established  a  Com- 
mission on  Car  Service  at  Washington  in  December,  1916. 
This  Commission  was  authorized  to  obtain  weekly  reports 
of  the  car  situation  and  issue  orders  with  regard  to  the 
return  of  cars.  Even  this  drastic  step  did  not  result  in 
much  improvement,  as  some  of  the  roads  failed  to  carry 
out  the  orders  of  the  Car  Service  Commission. 

Meanwhile  the  Interstate  Commerce  Commission  had 
been  investigating  the  problem  of  car  service.  In  January, 
191 7,  it  issued  a  report  on  car  supply  and  methods  of  car 
distribution,  and  prescribed  a  new  code  of  car  service  rules 
for  the  carriers  to  follow.  There  was  some  doubt  as  to 
whether  the  Interstate  Commerce  Commission  had  statu- 
tory authority  to  issue  orders  with  respect  to  car  service, 
but  the  order  had  the  effect  of  stimulating  the  carriers  to 
greater  activity.  The  Car  Service  Commission  was  reor- 
ganized and  the  carriers  agreed  to  abide  by  the  rules  which 
it  should  prescribe.  The  Interstate  Commerce  Commission 
then  postponed  the  effective  date  of  its  order,  and  took  steps 
to  cooperate  with  the  carriers  in  making  their  self-imposed 
regulations  effective.  Late  in  May  Congress  removed  all 
doubt  as  to  the  power  of  the  Interstate  Commerce  Com- 
mission to  regulate  car  service  by  passing  the  Esch  bill, 
which  expressly  conferred  upon  the  Commission  the  nec- 
essary authority. 

When  war  was  declared  on  April  6,  191 7,  the  railroad 
managers  immediately  took  steps  to  operate  the  railroads  in 
such  a  way  as  to  meet  the  needs  of  the  Government.  In  the 
Army  Appropriation  Act  of  August  29,  1916,  a  provision 
had  been  included  for  the  creation  of  a  Council  of   Na- 


GOVERNMENT  OPERATION  497 

tional  Defense,  consisting  of  six  cabinet  officers;  and  the 
President  had  been  authorized  to  appoint  an  Advisory  Com- 
mission consisting  of  not  more  than  seven  persons,  who 
should  be  specially  qualified  to  assist  in  mobilizing  the  eco- 
nomic resources  of  the  country  for  national  defense  in 
case  of  war.  President  Wilson  chose  as  the  transportation 
expert  of  the  Advisory  Commission  Mr.  Daniel  Willard, 
the  president  of  the  Baltimore  and  Ohio  Railroad.  At  Mr. 
Willard's  suggestion  the  American  Railway  Association 
on  February  16,  1917,  created  a  special  Committee  on  Na- 
tional Defense,  consisting  of  eighteen  railway  officials  from 
various  parts  of  the  United  States.  This  special  committee 
met  in  conference  with  the  Secretary  of  War  and  other 
War  Department  officers  on  March  1,  and  drew  up  plans 
for  the  cooperation  of  the  railroads  with  the  military  forces 
of  the  Government. 

Immediately  after  war  was  declared  the  Council  of  Na- 
tional Defense  requested  Mr.  Willard  to  "call  upon  the 
railroads  to  so  organize  their  business  as  to  lead  to  the 
greatest  expedition  in  the  movement  of  freight."  Mr.  Wil- 
lard thereupon  called  for  a  general  conference  of  railway 
executives  at  Washington.  Nearly  700  railway  presidents, 
representing  virtually  all  the  railways  of  the  United  States, 
assembled  at  Washington  on  April  11,  and  signed  the  fol- 
lowing   resolution : 

Resolved :  That  the  railroads  of  the  United  States,  acting  through 
their  chief  executive  officers  here  and  now  assembled,  and  stirred 
by  a  high  sense  of  their  opportunity  to  be  of  the  greatest  service  to 
their  country  in  the  present  national  crisis,  do  hereby  pledge  them- 
selves with  the  Government  of  the  United  States,  with  the  Govern- 
ments of  the  several  States,  and  with  one  another,  that  during  the 
present  war  they  will  coordinate  their  operations  in  a  continental 
railway  system,  merging  during  such  period  all  their  merely  individ- 
ual and  competitive  activities  in  the  effort  to  produce  a  maximum  of 
national  transportation  efficiency.  To  this  end  they  hereby  agree  to 
create  an  organization  which  shall  have  general  authority  to  formu- 


498  RAILROAD  TRANSPORTATION 

late  in  detail  and  from  time  to  time  a  policy  of  operation  of  all  or 
any  of  the  railways,  which  policy,  when  and  as  announced  by  such 
temporary  organization,  shall  be  accepted  and  earnestly  made  effect- 
ive by  the  several  managements  of  the  individual  railroad  companies 
here  represented. 

To  carry  out  the  plan  for  a  "continental  railway  system" 
the  Special  Committee  on  National  Defense  of  the  Ameri- 
can Railway  Association  was  enlarged  to  thirty-three  mem- 
bers. An  executive  committee  of  five,  known  as  the  Rail- 
roads' War  Board,  was  selected  from  this  committee.  The 
War  Board  established  headquarters  at  Washington  and 
undertook,  with  the  help  of  several  subcommittees,  to  bring 
about  a  better  coordination  of  the  railroad  service. 

The  Railroads'  War  Board  made  an  earnest  effort  to 
improve  the  railroad  service,  and  in  view  of  the  obstacles 
against  which  it  was  forced  to  struggle,  it  achieved  an 
amazing  degree  of  success.  Without  legal  authority  to 
compel  cooperation,  it  called  upon  the  individual  carriers 
for  voluntary  action.  It  organized  car  pools  for  the  more 
equitable  distribution  and  more  rapid  movement  of  cars; 
it  carried  on  an  intensive  educational  campaign  to  induce 
shippers  and  consignees  to  load  and  unload  cars  with  greater 
promptness;  it  encouraged  economy  and  efficiency  by  sug- 
gesting the  elimination  of  duplicate  passenger  train  service, 
the  heavier  loading  of  freight  cars,  and  the  curtailment  of 
all  special  services.  For  the  most  part  the  suggestions  of 
the  War  Board  were  readily  complied  with,  and  traffic 
statistics  of  191 7  showed  a  steadily  increasing  efficiency  of 
the  railroad  service. 

Notwithstanding  this  increasing  efficiency,  the  conditions 
of  railroad  transportation  in  the  fall  of  1917  did  not  appear 
greatly  better  than  in  the  preceding  fall,  and  the  coming 
of  the  winter  season  with  its  difficulties  of  operation  was 
looked  forward  to  with  no  little  apprehension.  Though 
the  carriers  were  handling  a  larger  and  larger  volume  of 


GOVERNMENT  OPERATION  499 

traffic,  the  amount  of  tonnage  offered  for  transportation 
grew  at  a  more  rapid  rate  than  the  amount  of  tonnage  car- 
ried. The  military  operations  of  the  Government — the 
construction  of  camps  and  the  concentration  of  troops  and 
supplies — caused  the  business  of  the  railroads  to  expand 
enormously. '  While  the  war  traffic  was  growing,  little  or 
no  effort  was  made  to  curtail  the  volume  of  ordinary  indus- 
trial traffic,  and  as  time  went  on  the  burden  of  the  roads 
became  constantly  heavier. 

One  reason  for  the  inability  of  the  carriers  to  cope  with 
the  situation  was  the  lack  of  sufficient  equipment.  The 
shortage  of  traffic  and  the  shortage  of  revenues  in  the  years 
since  1910  had  been  reflected  in  diminished  purchases  of 
cars  and  locomotives,  so  that  when  the  great  volume  of 
shipments  poured  in  during  1916  and  1917  there  was  not 
enough  rolling  stock  to  meet  the  needs  of  the  country.  The 
railroads  were  also  adversely  affected  by  the  labor  situation. 
The  struggle  over  the  eight-hour  law  had  served  to  promote 
discord  between  managers  and  employees,  and  they  did  not 
work  together  as  harmoniously  as  would  have  been  pos- 
sible under  other  conditions.  Moreover,  many  railroad 
employees  began  to  leave  the  railroad  service,  some  to  enter 
the  army  and  others  to  accept  better  paying  employment  in 
munition  plants,  steel  mills,  shipyards  and  other  factories. 
The  workmen  who  remained  with  the  carriers,  faced  with 
a  greatly  increased  cost  of  living  which  came  with  the 
steady  rise  of  prices  throughout  1917,  began  to  demand 
another  large  increase  of  wages. 

Meanwhile  the  railroads  had  failed  again  to  secure  any 
substantial  increase  in  freight  rates.  The  eight-hour  law 
and  the  rising  prices  of  fuel  and  other  supplies  caused  the 
cost  of  operation  to  mount  more  rapidly  than  ever,  and  in 
the  early  months  of  191 7,  notwithstanding  the  increasing 
volume  of  traffic,  there  was  a  sharp  decline  in  net  revenue. 
In  the  eastern  district  in  particular,  where  the  effect  of  ris- 


500  RAILROAD  TRANSPORTATION 

ing  prices  of  coal  and  other  materials  was  first  felt,  and 
where,  because  of  the  large  number  of  employees,  the  bur- 
den imposed  by  the  Adamson  Act  was  greatest,  the  rail- 
roads suffered  heavy  losses.  In  March  and  April  all  the 
railroads  of  the  country  appealed  to  the  Interstate  Com- 
merce Commission  for  permission  to  make  a  general  ad- 
vance of  15  per  cent  in  their  freight  charges.  In  a  decision 
handed  down  on  June  2.7  the  Commission  permitted  a  small 
increase  of  class  rates  and  a  small  increase  in  certain  com- 
modity rates  in  eastern  territory.  The  applications  of  the 
southern  and  western  carriers  were  denied,  except  for 
slight  increases  in  rates  on  coal,  coke,  and  iron  ore.  Again 
the  Commission  based  its  judgment  upon  the  statistical 
reports  of  previous  months,  and  particularly  of  the  pros- 
perous year  of  1916,  and  refused  to  permit  its  decision  to 
be  influenced  by  tendencies,  which  it  could  not  say  with 
certainty  would  continue.  An  analysis  of  the  official  statis- 
tics employed  by  the  Commission  in  reaching  its  decision 
showed  that  the  financial  condition  of  the  railroads  was  by 
no  means  alarming,  certainly  not  so  alarming  as  the  car- 
riers endeavored  to  make  out.  But  there  was  a  widespread 
belief  that  the  Commission  should  have  treated  the  carriers 
more  generously  and  that  it  should  have  made  greater 
allowance  for  the  probabilities  of  the  future.  The  financial 
conditions  of  the  railroads  became  steadily  worse,  just  at 
the  time  there  was  need  of  greatest  strength.  By  the  end 
of  1917  the  costs  of  operation  were  so  high  that  much 
more  than  a  15  per  cent  increase  of  rates  was  needed  to 
avert  impending  deficits  on  many  railroad  systems. 

Another  difficulty  which  the  Railroads'  War  Board  met 
with,  in  addition  to  insufficient  equipment  and  inadequate 
revenues,  was  the  matter  of  securing  complete  cooperation 
among  the  various  railroad  systems.  Notwithstanding  the 
resolution  signed  by  the  railroad  officials  on  April  11,  the 
railroads   were  not   "coordinated   in   a  continental   railway 


GOVERNMENT  OPERATION  501 

system,"  and  the  "many  individual  and  competitive  activi- 
ties" of  the  various  lines  were  not  "merged."  The  railroads 
of  the  United  States  had  been  developed  under  a  system  of 
competition,  and  the  managers  could  not  in  an  instant,  by 
mere  resolution,  sacrifice  the  competitive  advantages  which 
they  had  obtained  in  the  struggles  of  the  past.  Coordina- 
tion was  particularly  difficult  in  view  of  the  financial  posi- 
tion of  the  roads.  Each  carrier  was  under  the  strongest 
compulsion  to  use  whatever  strategic  advantage  it  possessed 
solely  for  its  own  benefit.  Each  road  held  fast  to  its  own 
terminal  facilities ;  there  was  not  always  a  scrupulous  obe- 
dience of  the  orders  of  the  War  Board  with  respect  to  car 
service ;  many  roads  declined  to  carry  out  plans  for  the 
elimination  of  duplicate  services  because  of  the  fear  of 
lost  patronage ;  many  lines  accepted  traffic  for  shipment, 
when  there  was  much  doubt  of  their  ability  to  carry  it  to 
destination,  merely  because  they  did  not  care  to  abandon 
any  business  to  rival  lines.  The  chief  excuse  given  for 
the  failure  of  the  carriers  to  unify  their  operations  to  a 
greater  degree  was  that  they  were  forbidden  to  do  so  by 
the  Sherman  Antitrust  Law  and  the  Interstate  Commerce 
Law.  As  a  matter  of  fact  neither  of  these  laws  forbade 
the  common  use  of  the  physical  facilities  of  railways, 
though  they  forbade  the  financial  cooperation,  which,  in 
ordinary  times,  would  have  been  necessary  for  the  adoption 
of  a  comprehensive  plan  of  operating  unity. 

Still  another  obstacle  to  the  efficient  operation  of  the 
railroads  was  the  diversified  system  of  governmental  con- 
trol which  came  into  existence  during  the  early  stages  of 
the  war.  By  an  act  passed  August  29,  1916,  the  railroads 
were  required,  upon  the  demand  of  the  President,  to  give 
preference  in  transportation  to  troops  and  military  sup- 
plies. Under  authority  of  this  law  officials  of  the  Army, 
the  Navy  and  the  United  States  Shipping  Board  gave  to 
the  carriers  large  numbers  of  priority  orders.     Agents  of 


502  RAILROAD  TRANSPORTATION 

the  Food  and  the  Fuel  Administrations  likewise  ordered 
preference  to  be  given  to  shipments  of  food  and  fuel.  The 
Interstate  Commerce  Commission  was  authorized  to  con- 
trol car  service.  On  August  10,  1917,  Congress  enacted 
a  Priority  Law,  under  the  terms  of  which  the  President 
was  empowered  during  the  continuation  of  the  war,  to 
direct  all  carriers,  both  rail  and  water,  to  give  preference 
in  transportation  to  such  traffic  as  in  the  President's  judg- 
ment was  essential  to  national  defense.  On  August  29  a 
law  was  passed  enlarging  the  membership  of  the  Interstate 
Commerce  Commission  from  seven  to  nine.  While  all  the 
provisions  for  expediting  the  movement  of  freight  were 
admirable  in  purpose,  they  served  to  produce  confusion 
and  disorganization,  because  there  was  little  coordination 
among  the  different  regulating  authorities.  The  railroads 
protested  against  the  multitude  of  priority  orders  emanat- 
ing from  so  many  different  sources.  After  the  appointment 
of  Judge  Robert  S.  Lovett,  Chairman  of  the  Executive 
Committee  of  the  Union  Pacific  Railroad,  as  Director  of 
Priority  Shipments  on  August  18,  there  was  a  distinct 
change  for  the  better  in  the  issuing  of  priority  orders,  and 
it  became  possible  to  secure  the  expeditious  movement  of 
essential  traffic,  to  the  exclusion  of  traffic  of  less  importance. 
Notwithstanding  the  efforts  of  Judge  Lovett  and  the 
War  Board,  the  railroads  became  more  and  more  con- 
gested. Late  in  November  the  carriers  in  the  eastern  dis- 
trict took  the  drastic  step  of  pooling  "all  available  facilities 
on  all  railroads  east  of  Chicago  ...  to  the  extent  neces- 
sary to  furnish  maximum  freight  movement."  An  operat- 
ing committee  was  appointed,  with  headquarters  at  Pitts- 
burgh, to  direct  the  operation  of  the  pooled  lines.  All 
export  shipment  of  steel  products,  except  those  intended 
for  the  use  of  the  United  States  Government,  was  ordered 
to  be  diverted  from  the  Pittsburgh  gateway;  all  other 
freight   which   ordinarily   passed   through    Pittsburgh    was 


GOVERNMENT  OPERATION  503 

ordered  to  be  diverted  to  other  lines  North  and  South ;  the 
Pennsylvania's  finest  train,  the  "Broadway  Limited,"  was 
discontinued;  all  "fast"  freight  service  was  suspended; 
and  the  use  of  open  top  cars  for  the  team  track  loading  of 
coal  was  discontinued.  Had  this  step  toward  operating 
unity  been  taken  several  months  sooner,  it  is  probable  that 
the  private  operation  of  railroads  would  have  been  contin- 
ued. Unfortunately  it  had  not  been  possible  to  obtain  such 
action  earlier  through  the  voluntary  cooperation  of  the 
eastern  lines. 

By  December  it  had  become  apparent  that  the  railroad 
problem  was  approaching  a  crisis,  and  that  radical  action 
was  necessary  to  prevent  the  transportation  system  from 
breaking  down.  The  problem,  for  the  time  being  at  least, 
was  entirely  a  problem  of  operation.  Time  did  not  permit 
a  great  increase  in  the  facilities  of  the  carriers ;  it  was  nec- 
essary to  operate  existing  facilities  with  a  greater  degree 
of  efficiency.  Only  a  complete  unification  of  the  railroads 
in  the  congested  districts  could  save  the  situation.  On 
December  I,  the  Interstate  Commerce  Commission,  in  a 
special  report  to  Congress,  reviewed  the  railroad  situation, 
and  recommended  that  (i)  the  President  assume  control 
of  the  railroads  and  operate  them  for  the  duration  of  the 
war,  or  that  (2)  whatever  legal  obstacles  prevented  unified 
operation  by  the  carriers  themselves  be  immediately  re- 
moved, and  that  the  Government  give  the  roads  any  needed 
financial  assistance.  Commissioner  McChord,  in  a  separate 
statement,  asserted  that  even  with  the  suspension  of  all 
antitrust  legislation,  voluntary  cooperation  among  the  car- 
riers could  not  be  achieved  because  of  their  long-standing 
competitive  differences.  He  recommended  that  the  Gov- 
ernment take  direct  charge  of  the  railroads  and  accomplish 
by  compulsory  methods  the  necessary  unification  of  oper- 
ating facilities. 

The   policy   of   complete   government   control   had   been 


504  RAILROAD  TRANSPORTATION 

followed  both  in  Germany  and  Great  Britain  since  the  be- 
ginning of  the  war.  In  Germany  the  lines  owned  and 
operated  by  the  various  states  of  the  Empire  had  been 
taken  over  by  the  Imperial  Government  and  operated  as 
a  single  system.  In  Great  Britain,  the  railroads,  privately 
owned  as  in  the  United  States,  had  at  the  beginning  of 
the  war,  passed  at  once  under  the  control  of  the  Govern- 
ment, in  accordance  with  the  terms  of  a  law  enacted  in  1871. 

In  the  Army  Appropriation  Act  of  August,  1916,  Con- 
gress had  authorized  the  President  in  time  of  war,  through 
the  Secretary  of  War,  to  take  possession  and  assume  con- 
trol of  the  transportation  system  of  the  United  States  and 
operate  it,  to  the  exclusion  of  other  traffic,  for  the  transfer 
of  troops,  war  material  and  other  equipment.  Acting  under 
the  authority  of  this  law,  President  Wilson,  on  December 
26,  1917,  issued  a  proclamation  providing  for  his  assump- 
tion of  control  of  the  steam  railroads  of  the  United  States 
at  twelve  o'clock  noon,  December  28.  He  named  William 
G.  McAdoo,  the  Secretary  of  the  Treasury,  as  Director 
General  of  Railroads.  The  President  had  decided  that  the 
unification  of  railway  facilities  could  be  obtained  only 
through  the  operation  of  the  railroads  directly  by  the 
Government. 

Mr.  McAdoo,  for  the  time  being,  retained  intact  the 
operating  organization  of  the  individual  railroads.  He 
created  a  central  administrative  system  at  Washington,  and 
took  immediate  steps  to  weld  the  many  lines  of  the  coun- 
try into  one  great  system,  employing  their  facilities  in  a 
manner  which  produced  a  maximum  of  transportation  serv- 
ice, without  regard  to  the  welfare  of  the  single  roads.  He 
soon  divided  the  country  into  three  great  operating  dis- 
tricts or  regions,  placing  an  experienced  and  competent 
railway  official  in  charge  of  each  region.  Gradually  the 
entire  system  of  administration  was  changed.  The  various 
railway  presidents  were  relieved  entirely  of  their  duties  as 


GOVERNMENT  OPERATION  505 

the  operating  heads  of  the  railroads,  and  "Federal  Man- 
agers" appointed  in  their  place.  Some  of  the  Federal  Man- 
agers were  chosen  from  among  the  railway  presidents,  in 
which  case  they  were  required  to  surrender  their  positions 
with  the  railroad  corporations  and  become  solely  officials 
of  the  Railroad  Administration.  The  presidents  who  re- 
tained their  connection  with  their  corporations  gave  up  all 
their  duties  and  responsibilities  of  operation.  A  Federal 
Manager  was  frequently  given  supervision  over  lines  or 
parts  of  lines  which  previously  had  had  no  financial  or 
operating  relations  with  one  another.  The  identity  of  indi- 
vidual lines  was  disregarded. 

The  system  of  administration  finally  worked  out  consisted 
of  two  parts.  At  Washington  there  was  a  central  staff 
organization  having  general  supervision  of  all  branches 
of  the  railway  service.  This  organization  was  made  up 
as  follows : 

Director  General  of  Railroads. 

Division  of  Public    Service    and    Accounting. 

Division  of  Law. 

Division  of  Finance  and  Purchases. 

Division  of  Capital   Expenditures. 

Division  of  Operation. 

Division  of  Traffic. 

Division  of  Labor. 

Division  of  Inland   Waterways. 

Each  division  was  in  charge  of  a  director,  who  was  as- 
sisted by  a  staff  of  experts.  The  operating  organization 
was  made  up  of  seven  regional  administrations,  the  regions 
being  the  Eastern,  the  Allegheny,  the  Pocahontas,  the 
Southern,  the  Northwestern,  the  Central  Western  and  the 
Southwestern.  Each  region  was  in  charge  of  a  Regional 
Director  to  whom  the  Federal  Managers  were  responsible. 
The  operating  organization  below  the  Federal  Managers 
was  very  much  the  same  as  it  had  been  before  Federal 
control. 


506  RAILROAD  TRANSPORTATION 

Not  all  the  railroads  of  the  country  were  subjected  to 
Federal  control.  Some  of  the  "short  lines"  were  not  taken 
over  by  the  Railroad  Administration,  and  some  which  were 
taken  over  at  the  beginning  were  released  before  July  i, 
1 91 8.  Virtually  all  the  Class  I  roads  were  operated  by  the 
Government,  however,  and  a  number  of  the  smaller  systems. 
The  Pullman  car  service  also  passed  under  Government  con- 
trol. The  express  companies  were  required  to  consolidate 
into  a  single  company,  and  in  November,  191 8,  the  opera- 
tion of  this  company  was  likewise  assumed  by  the  Gov- 
ernment. 

While  the  action  of  the  President  in  assuming  control  of 
the  railroads  was  taken  by  virtue  of  the  act  of  August  29, 
1916,  it  was  necessary  to  enact  further  legislation  to  deal 
with  the  problems   which  immediately  arose.      On   March 
21,   1918,  a  Railroad  Control  Act  was  passed.     This  law 
guaranteed  to  each  railroad  corporation,  whose  lines  were 
taken  over,  an  annual  payment  not  exceeding  its  average  net 
operating  income  for  the  three  years  ending  June  30,  191 7,  it 
being  stipulated  that  the  President  should  make  an  agree- 
ment with  each  company  to  determine  the  exact  amount  of 
compensation  payable.     It  was  provided  that  in  cases  where 
agreements    could    not    be    arranged   the    problem    of    just 
compensation   should  be  submitted  to  boards   of   referees, 
and    if    a    decision    acceptable    to    a    carrier   could    not   be 
reached  it  should  have  the  right  of  appeal  to  the  Court  of 
Claims.     It  was  stipulated  that  the  Government  should  pro- 
vide   for   all   maintenance,   repairs   and   renewals,   that   the 
property  of  each  carrier  should  be  returned  "in  substan- 
tially as  good  repair  and  in  substantially  as  complete  equip- 
ment as  it  was  at  the  beginning  of  the  Federal  control," 
and  that  the  United   States  should  be  reimbursed   for  all 
additions  and  betterments  not  justly  chargeable  to  the  Gov- 
ernment.    A  revolving  fund  of  $500,000,000  was  created 
to  pay  the  expenses  of  Federal  control  and  to  finance  the 


GOVERNMENT  OPERATION  507 

operation  of  the  roads.  The  President  was  authorized  to 
initiate  all  charges,  classifications,  regulations  and  prac- 
tices, by  filing  them  with  the  Interstate  Commerce  Com- 
mission. The  Commission  was  deprived  of  its  powers  of_ 
suspension,  but  it  retained  the  power  to  investigate  the 
reasonableness  of  all  rates  and  regulations  and  make  such 
orders  as  it  was  authorized  to  make  by  the  Interstate  Com- 
merce Act.  A  final  provision  of  the  law  was  that  the  roads 
should  be  returned  to  their  owners  within  one  year  and  nine 
months  following  the  ratification  of  the  treaty  of  peace. 

The  Railroad  Administration  made  a  number  of  impor- 
tant changes  for  the  purpose  of  bringing  about  a  greater 
degree  of  operating  unity  in  the  railroad  system.  Perhaps 
the  most  important  innovation  was  the  joint  use  of  termi- 
nals, equipment,  repair  shops,  and  other  physical  facili- 
ties owned  by  the  separate  lines.  An  arbitrary  control  of 
the  routing  and  distribution  of  traffic  relieved  the  conges- 
tion on  crowded  roads,  and  obtained  more  service  from 
the  lines  that  had  not  been  operated  to  full  capacity.  A 
greater  effort  was  put  forth  to  control  traffic  at  the  source, 
shipments  being  accepted  only  when  official  permits  showed 
there  was  no  obstacle  in  the  way  of  prompt  delivery  at 
destination.  The  elimination  of  duplicate  passenger  serv- 
ices did  much  to  conserve  motive  power  and  labor,  and  if 
passenger  trains  were  more  crowded  and  the  service  not  so 
speedy,  the  public  made  but  little  complaint.  Consolidated 
time  tables  of  passenger  trains  and  consolidated  ticket  of- 
fices were  measures  of  economy,  which  also  afforded  con- 
veniences not  available  under  competitive  methods  of  opera- 
tion. The  Railroad  Administration  purchased  a  consider- 
able number  of  new  locomotives  and  freight  cars.  By  ad- 
hering to  more  nearly  standardized  equipment  and  by 
introducing  standardization  into  repair  work,  the  Govern- 
ment saved  money  and  secured  faster  production  than  would 
otherwise  have  been  possible. 


508  RAILROAD  TRANSPORTATION 

In  dealing  with  labor  the  Railroad  Administration 
adopted  the  principle  of  collective  bargaining  with  all 
classes  of  employees,  whereas  under  private  operation  the 
railroad  companies  had  dealt  collectively  only  with  a  few 
groups.  When  government  operation  began,  the  wages 
of  railroad  employees  were  considerably  lower  than  the 
wages  paid  in  other  lines  of  industry,  a  condition  which  was 
causing  the  daily  loss  of  both  skilled  and  unskilled  work- 
men. One  of  the  first  acts  of  the  Railroad  Administration 
was  to  appoint  a  non-partisan  Railway  Wage  Commission, 
the  workmen  receiving  assurance  that  whatever  increase 
the  Commission  granted  should  be  effective  as  from  Janu- 
ary i,  1918.  On  the  basis  of  the  Commission's  report  the 
Director  General  issued  an  order  in  May,  providing  for  a 
substantial  increase  in  the  wages  of  all  classes  of  em- 
ployees. Subsequently  a  Board  of  Railroad  Wages  and 
Working  Conditions  was  created,  consisting  of  three  rep- 
resentatives of  railroad  labor  and  three  representatives  of 
railroad  managements.  This  Board  considered  the  special 
claims  of  individual  classes  of  railroad  employees  and  made 
recommendations  upon  the  basis  of  which  other  wage  in- 
creases were  ordered.  Three  bipartisan  boards  of  adjust- 
ment were  created  to  settle  controversies  which  could  not 
be  settled  by  the  workmen  and  the  local  managements.  The 
eight-hour  day  was  established  throughout  the  railroad 
service.  While  the  Railroad  Administration  dealt  with 
railroad  labor  organizations,  it  did  not  discriminate  between 
those  workmen  who  belonged  to  labor  unions  and  those 
who  did  not.  The  last  increase  in  wages,  made  by  the 
Railroad  Administration,  came  early  in  1919.  By  that  time 
the  wages  of  railroad  labor  had  been  raised  to  the  general 
level  of  wages  in  other  lines  of  industry,  though  there  were 
some  industries  in  which  wages  were  lower  than  in  the 
railroad  service  and  others  in  which  wages  were  higher. 
One  feature  of  the  labor  policy  of  the  Railroad  Adminis- 


GOVERNMENT  OPERATION  509 

tration  which  was  much  criticized  was  that  wages  were 
standardized  throughout  the  United  States.  The  stand- 
ardization was  the  cause  of  excessive  increases  of  pay  in 
the  case  of  many  individual  employees;  while  wide  varia- 
tions in  the  cost  of  living  throughout  the  country  produced 
great  inequality  in  real  wages. 

Higher  wages  and  higher  costs  of  fuel  and  equipment 
necessitated  increased  revenues.  On  May  25,  1918,  the 
Director-General  issued  an  order  providing  for  a  25  per 
cent  increase  in  all  class  rates  on  freight  traffic,  an  increase 
of  approximately  25  per  cent  in  all  commodity  rates,  and 
an  increase  of  passenger  fares  to  three  cents  a  mile.  Com- 
mutation fares  were  advanced  10  per  cent  and  Pullman 
fares  were  also  made  higher.  Higher  minimum  charges 
on  less  than  carload  and  on  carload  freight  shipments  were 
established,  export  and  import  rates  were  temporarily  can- 
celled, and  various  other  changes  made  in  rates  and  fares 
with  the  purpose  of  increasing  the  income  of  the  railroads. 
Intrastate  charges  and  interstate  charges  were  treated  as 
a  whole  and  all  advanced  in  a  uniform  manner.  Numerous 
protests  were  made  against  the  advanced  rate  order,  not 
so  much  because  of  the  increased  charges  as  because  of  the 
disturbance  of  long-standing  rate  relationships.  The  Rail- 
road Administration  recognized  the  desirability  of  main- 
taining intact,  as  nearly  as  possible,  the  rate  structures 
which  had  been  brought  into  effect  in  the  course  of  the 
industrial  and  commercial  development  of  the  nation.  It 
therefore  brought  about  the  organization  of  a  number  of 
regional  and  district  rate  committees.  A  novel  feature  of 
these  committees  was  that  they  all  had  in  their  membership 
representatives  of  the  shipping  interests  as  well  as  repre- 
sentatives of  the  railroads.  The  committees  took  the  place, 
during  the  period  of  government  operation,  of  the  traffic 
associations  formerly  maintained  by  the  railroads. 

From  the   standpoint   of   operating   results  the   manage- 


510  RAILROAD  TRANSPORTATION 

ment  of  the  railroads  by  the  Government  was  on  the  whole 
satisfactory.  Arbitrary  measures  were  necessary  to  obtain 
the  movement  of  essential  traffic,  and  such  arbitrary  meas- 
ures as  were  desirable  the  Railroad  Administration  could 
and  did  put  into  effect.  The  unification  of  the  physical 
facilities  of  the  railroads  and  the  redistribution  of  traffic 
made  it  possible  to  relieve  the  congestion  which  existed 
when  Federal  control  began,  and  throughout  the  twenty- 
six  months  of  government  operation  the  record  of  traffic 
movement  was  good.  There  were  numerous  complaints 
on  the  part  of  individual  travelers  and  shippers,  and  there 
was  unquestionably  much  reason  for  complaint,  but  in 
nearly  all  cases  the  inconveniences  suffered  by  individuals 
were  the  necessary  result  of  making  the  military  activities 
of  the  Government  the  matter  of  paramount  consideration. 

From  a  financial  standpoint  the  results  of  Federal  con- 
trol were  not  so  satisfactory.  The  advances  in  rates  initi- 
ated by  the  Railroad  Administration  were  insufficient  to 
meet  the  greatly  increased  costs  of  operation,  and  through- 
out the  period  of  Federal  control  there  was  a  deficit.  The 
excess  of  operating  expenses  and  rentals  over  operating 
revenues  for  the  twenty-six  months'  period  amounted  to 
approximately  $900,000,000.  It  is  possible  that  several 
million  dollars  more  must  be  paid  in  taxes  before  the  obli- 
gations of  the  Government  are  met.  Some  railroad  com- 
panies will  unquestionably  present  large  claims  on  account 
of  the  under-maintenance  of  their  properties.  On  the 
other  hand  the  Government  has  large  sums  due  from  the 
carriers  on  account  of  additions,  betterments  and  loans.  It 
was  the  opinion  of  Mr.  Walker  D.  Hines,  who  succeeded 
Mr.  McAdoo  as  Director  General  of  Railroads  early  in 
1919,  that  the  balance  against  the  Government  would  in 
the  end  be  comparatively  small.  It  will  be  several  years 
before  a  final  accounting  of  results  can  be  had. 

When  hostilities  came  to  an  end  in  November,  1918,  the 


GOVERNMENT  OPERATION  511 

railroad  situation  offered  one  of  the  most  important  prob- 
lems of  domestic  reconstruction.  Government  operation 
had  not  achieved  much  popularity  with  the  public,  and 
while  a  few  groups  were  in  favor  of  its  indefinite  continu- 
ation, the  great  weight  of  public  opinion  was  in  favor  of  a 
speedy  restoration  of  private  control.  It  was  generally 
conceded,  however,  that  before  the  railroads  could  safely 
be  returned  to  their  owners  it  would  be  necessary  for  Con- 
gress to  enact  legislation  providing  for  a  radical  alteration 
of  the  railroad  policy  of  the  Government.  A  new  Federal 
railroad  policy  was  finally  worked  out  and  embodied  in  the 
Transportation  Act.  This  measure,  which  became  a  law 
on  February  28,  1920,  is  by  far  the  most  important  piece 
of  railroad  legislation  that  Congress  has  enacted.  It  will 
be  discussed  in  the  following  chapter. 

REFERENCES 

The  Five  Per  Cent  Case.     31  I.  C.  C.  351;  32  I.  C.  C.  325. 

The  Fifteen  Per  Cent  Case.    45  I.  C.  C.  303. 

Special  Report  of  the  Interstate  Commerce  Commission  of 
December  1,  1917.     47  I.  C.  C.  757. 

Dixon,  Frank  H.,  and  Parmelee,  Julius  H.,  War  Admin- 
istration of  the  Railways  in  the  United  States  and  Great 
Britain.      1918. 

Annual  Reports  of  the  Director  General  of  Railroads,  1918- 
1920. 

The  Railroad  Problem:  A  Discussion  of  Current  Railway- 
Issues.  Annals  of  the  American  Academy  of  Political  and 
Social  Science,  November,  1919.  (Contains  articles  deal- 
ing with  government  operation  in  the  United  States,  pro- 
posals for  railroad  legislation,  and  railroad  labor  ques- 
tions.) 

Railroad  Legislation.  Proceedings  of  the  Academy  of  Pol- 
itical Science  in  the  City  of  New  York,  November  21-22, 
1919.  (Opinions  on  the  railroad  problem  by  railroad  finan- 
ciers, railroad  presidents  and  other  executives,  labor  lead- 
ers, economists,  and  members  of  Congress.) 


CHAPTER  XXIX 
THE   TRANSPORTATION   ACT    OF    1920 

Reconstruction  plans,  512.  The  Cummins  and  the  Esch  bills,  514. 
The  Transportation  Act,  515.  Labor  disturbances,  523.  Rate 
increases,  524.  The  business  depression,  525.  Operation  of  the 
law,  528.     References,  533. 

•President  Wilson,  in  his  annual  message  to  Congress 
in  December,  1918,  urged  that  the  railroad  problem  should 
receive  speedy  consideration.  He  had  no  constructive  plan 
of  legislation  to  offer,  his  only  suggestion  being  that  the 
old  railroad  policy  "of  restraint  without  development" 
should  be  modified.  The  Interstate  Commerce  Commission, 
in  its  annual  report  for  1918,  made  certain  general  recom- 
mendations as  to  what  changes  Congress  should  make  in  the 
law  in  the  event  that  the  principle  of  private  operation  and 
public  regulation  should  be  retained  as  the  basis  of  future 
railroad  policy.  Mr.  McAdoo,  the  Director  General  of 
Railroads,  advised  that  the  period  of  Federal  control  sl^nnld 
be  extended  for  at  least  five  years  beyond  lanuary  1,  19 19, 
asserting  that  such  action  would  take  the  railroad  question 
out  of  politics,  would  give  time  to  restore  the  credit  of  the 
carriers,  and  give  opportunity  to  study  and  test  the  feasi- 
bility of  Government  control  under  normal  conditions. 

Mr.  McAdoo's  proposal  met  with  little  favor  among  the 
shipping  interests  of  the  country  or  with  the  railway  exec- 
utives and  the  owners  of  the  railroads.  The  commercial 
and  financial  interests  of  the  nation  were  almost  unanimous 
in  urging  the  speedy  restoration  of  private  management 
under  such  laws  as  would  conserve  railroad  credit  and  per- 
mit the  expansion  of  the  railway  facilities  to  meet  the  needs 
of  commerce.     In  January,  1919,  the  Association  of  Rail- 

512 


TRANSPORTATION  ACT  OF  1920  513 

way  Executives  published  a  plan  of  railroad  legislation, 
the  most  important  feature  of  which  was  the  creation  of  a 
Federal  Transportation  Board  which  should  takeover  the 
purely  admrnIstraTTve~f  unctiqnso  f  UieTnterstate  Commerce 
Commission  and  also  certify  to  the  Commission  the  amount 
of  revenue  needed  by  the  railroads  in  order  that  .Ihfaurnieht 
be  properjy__maintained  jind  their  nwngrs  receive  an^ade- 
quater^twi-n.  Other  commercial  organizations  likewise  sub- 
mitted "plans"  for  the  guidance  of  Congress.  The  Na- 
tional Association  of  Owners  of  Railway  Securities,  of 
which  S.  Davies  Warfield  was  president,  proposed  a  plan, 
the  central  feature  of  which  was  the  establishment  of  a 
statutory  rule  of  rate  making,  which  would  serve  to  protect 
the  interests  of  railway  investors.  Other  plans  were  sub- 
mitted by  the  Citizens'  National  Railroads  League  and  by 
the  National  Transportation  Conference  organized  by  the 
United  States  Chamber  of  Commerce. 

The  plan  which  provoked  the  greatest  discussion  was 
that  known  as  the  Plumb  plan,  named  for  its  author,  Glenn 
E.  Plumb,  who  had  for  some  time  acted  as  general  counsel 
for  the  four  railroad  brotherhoods.  Virtually  all  the  advo- 
cates of  the  principle  of  government  ownership  of  railroads 
centered  their  energies  upon  the  promotion  of  this  plan. 
It  proposed,  in  effect,  that  the  Government  should  pusekase 
the  railroads  and  entrust  their  operation  to  a  board  of  direc- 
tors  in  which  the  railway  laborers  were  to  have  the  con- 
trolling  voice!  It  was  indorsed  by  the  leading  officials  of 
the  railroad  brotherhoods,  by  the  head  of  the  Railroad  Em- 
ployees' Department  of  the  American  Federation  of  Labor, 
and  by  the  officers  of  many  other  labor  organizations. 

The  Plumb  plan  met  with  scant  approval  by  the  public 
at  large.  It  soon  became  evident,  likewise,  that  Congress 
was  overwhelmingly  opposed  both  to  the  principle  of  gov- 
ernment ownership  and  to  the  continuation  of  Federal  oper- 
ation for  a  longer  time  than  was  necessary  to  enact  a  new 


514  RAILROAD  TRANSPORTATION 

railroad  law.  The  enactment  of  a  satisfactory  law,  how- 
ever, presented  a  problem  of  no  little  difficulty.  There  was 
a  wide  divergence  of  view  among  the  interests  which  de- 
sired the  speedy  restoration  of  the  railroads  to  their  owners, 
and  their  divergence  of  view  was  reflected  in  the  varying 
opinions  of  the  members  of  Congress  who  were  responsible 
for  passing  railroad  legislation. 

A  special  session  of  Congress  was  called  in  May  to  deal 
with  a  number  of  problems  of  domestic  reconstruction. 
Hearings  on  the  railroad  problem  were  held  during  the  en- 
suing months  both  by  the  Senate  Committe  on  Interstate 
Commerce  and  by  the  House  Committee  on  Interstate  and 
Foreign  Commerce.  Testimony  was  given  by  the  advocates 
of  all  the  "plans"  for  railroad  regulation.  In  October  the 
Senate  committee  reported  out  the  Cummins  bill,  named  for 
Senator  Cummins,  the  chairman  of  the  committee.  The 
Esch  bill  was  reported  in  the  House  of  Representatives  on 
November  10  and  passed  by  the  House  on  November  17. 
When  it  was  sent  to  the  Senate,  it  was  amended  by  the 
substitution  of  the  Cummins  bill,  which  received  a  favor- 
able vote  on  December  20.  The  disagreement  of  the  two 
branches  of  Congress  made  it  necessary  to  entrust  the  work 
of  framing  the  definitive  bill  to  a  conference  committee  rep- 
resenting both  houses. 

The  conference  committee  began  its  deliberations  during 
the  Christmas  holidays.  It  seemed  for  a  time  that  it  would 
be  impossible  for  an  agreement  to  be  reached.  When  on 
December  26  President  Wilson  issued  a  proclamation  de- 
claring that  he  would  return  the  railroads  under  control  to 
their  owners  on  March  1,  1920,  it  became  apparent  that 
Congress  could  not  avoid  taking  definite  action.  The  mem- 
bers of  the  conference  committee  finally  compromised  their 
differences  and  returned  a  bill  which  differed  in  many  re- 
spects from  both  the  Cummins  and  the  Esch  bills.  The 
conference  bill  was  passed  in  the  House  by  a  large  majority 


TRANSPORTATION  ACT  OF  1920  515 

on  February  i8,  and  five  days  later  it  was  passed  by  the 
Senate.  It  was  signed  by  the  President  on  February  28, 
two  days  before  the  expiration  of  the  period  of  Federal 
control. 

The  Transportation  Act,  as  the  new  law  was  called,  was 
made  up  chiefly  of  amendments  to  the  old  Interstate  Com- 
merce Act.  It  also  contained  certain  provisions  covering 
problems  connected  with  the  return  of  the  roads  to  their 
owners,  and  it  created  an  administrative  machinery  to  deal 
with  railroad  labor  controversies. 

The  law  guaranteed  to  the  carriers,  for  a  period  of  six 
months  following  the  resumption  of  private  operation,  a 
net  return  equal  to  the  rentals  paid  during  the  period  of 
Federal  control.  The  carriers  were  permitted  to  make  a 
choice  of  accepting  the  Government  guarantee,  or  of  as- 
suming complete  financial  independence  after  March  1.  The 
law  also  gave  financial  assistance  to  those  short  lines  which 
the  Government  had  operated  for  only  a  short  time  or  had 
not  operated  at  all.  An  appropriation  of  $200,000,000 
was  set  aside,  from  which  the  railroad  corporations  might 
secure  loans,  upon  the  approval  of  the  Interstate  Commerce 
Commission,  for  a  period  of  two  years  after  the  passage 
of  the  law.  Those  carriers  which  were  indebted  to  the 
Government,  because  of  advances  of  cash  for  capital  ex- 
penditures made  during  the  period  of  Federal  control,  were 
authorized  to  fund  their  obligations  for  a  period  of  ten 
years,  with  an  interest  rate  of  6  per  cent.  It  was  stipulated 
that  rates  and  fares  in  existence  at  the  termination  of  Fed- 
eral control  should  not  be  reduced  during  the  guaranty 
period  of  six  months,  except  with  the  approval  of  the  Inter- 
state Commerce  Commission,  and  that  during  the  same 
period  the  railroad  companies  should  make  no  reductions  in 
wages  and  salaries. 

The  labor  clauses  of  the  Transportation  Act  were  a  sub- 
ject of  much  controversy.     There  was  a  widespread  belief 


516  RAILROAD  TRANSPORTATION 

that  railroad  strikes  should  be  prohibited  and  that  the  car- 
riers and  their  employees  should  be  required  to  accept  the 
principle  of  compulsory  arbitration  of  labor  disputes.  The 
Cummins  bill,  as  passed  by  the  Senate,  forbade  railroad 
strikes ;  the  Esch  bill  did  not  contain  any  compulsory  labor 
clause.  The  conference  report  followed  the  Esch  bill.  The 
Transportation  Act  does  not  prohibit  railroad  strikes  and 
it  does  not  provide  for  compulsory  arbitration,  but  it  de- 
clares it  to  be  "the  duty  of  all  carriers  and  their  officers, 
employees,  and  agents  to  exert  every  reasonable  effort  and 
adopt  every  available  means  to  avoid  any  interruption  to 
the  operation  of  any  carrier  growing  out  of  any  dispute 
between  the  carrier  and  the  employees  or  subordinate  offi- 
cials thereof,"  and  provides  for  official  machinery  by  which 
all  disputes  may  be  settled  without  resort  to  extreme 
methods. 

The  law  authorized  the  creation  of  Railroad  Boards  of 
Labor  Adjustment.  These  boards  may  be  established  by 
agreement  between  any  carrier,  group  of  carriers,  or  the 
carriers  as  a  whole,  and  any  employees  or  subordinate  offi- 
cials of  the  carriers.  Disputes  involving  grievances,  rules 
and  working  conditions,  not  capable  of  being  settled  by 
direct  conference  of  carriers  and  their  employees  may  be 
referred  to  these  boards  for  hearing  and  adjudication.  The 
establishment  of  the  boards  is  entirely  optional. 

In  addition  to  providing  for  Boards  of  Adjustment  the 
Transportation  Act  created  a  salaried  Railroad  Labor 
Board,  consisting  of  nine  members,  three  representing  the 
railroad  employers,  three  representing  the  employees,  and 
three  representing  the  public.  This  Board  is  authorized 
to  hear  all  disputes  concerning  wages,  and  any  dispute  in- 
volving grievances,  rules,  and  working  conditions  not  ca- 
pable of  being  settled  by  the  Adjustment  Boards.  The 
act  stipulated,  too,  that  in  case  Adjustment  Boards  should 
not  be  organized,  the  Labor  Board  should  have  jurisdiction 


TRANSPORTATION  ACT  OF  1920  517 

over  questions  which  otherwise  would  have  fallen  within 
the  province  of  the  Adjustment  Boards.  The  members  of 
the  Labor  Board  are  appointed  by  the  President,  with  the 
approval  of  the  Senate,  the  three  members  representing 
respectively  the  employees  and  the  employers  being  chosen 
from  nominees  designated  by  these  interests.  The  method 
by  which  the  employees  and  employers  make  and  offer 
their  nominations  to  the  President  are  prescribed  by  the 
Interstate  Commerce  Commission. 

In  the  adjudication  of  the  disputes  involving  wages  and 
salaries  the  Railroad  Labor  Board  decides  what  rates  of 
pay  are  in  its  opinion  just  and  reasonable.  In  determining 
what  is  reasonable  the  Board  is  required  to  take  into  con- 
sideration the  scale  of  wages  in  other  industries,  the  rela- 
tion between  wages  and  the  cost  of  living,  the  hazards  of 
employment,  the  character  and  regularity  of  employment, 
and  various  other  factors  which  must  be  taken  into  account 
in  the  consideration  of  controversies  over  the  reasonable 
ness  of  wages.  The  Board  is  authorized  to  require  the 
attendance  of  witnesses,  and  it  has  access  to  any  railroad 
documents  and  records  that  may  have  a  bearing  upon  the 
cases  which  arise.  Its  decisions  have  no  binding  effect 
either  upon  the  carriers  or  upon  their  employees.  No  pen- 
alty is  incurred  if  the  decisions  of  the  Board  are  disre- 
garded. Its  effectiveness  as  an  agency  for  the  settlement 
of  disputes  depends  entirely  upon  the  willingness  of  em- 
ployers and  employees  to  accept  its  decisions. 

The  most  important  part  of  the  Transportation  Act  con- 
sists of  various  amendments  to  the  Interstate  Commerce 
Law.  The  amendment  of  chief  significance  is  that  pre- 
scribing a  rule  of  rate  making  to  be  followed  by  the  Inter- 
state Commerce  Commission.  For  many  years  railway 
managers  and  railway  investors  had  been  claiming  that  the 
Commission  had  been  inclined  to  treat  the  railroads  in  a 
somewhat  niggardly  manner,  and  it  was  the  insistence  of 


518  RAILROAD  TRANSPORTATION 

these  interests  that  brought  about  the  inclusion  of  the  statu- 
tory rule  of  rate  making  in  the  Transportation  Act.  The 
Commission  is  authorized  to  divide  the  country  into  rate 
districts  or  territories  and  to  initiate  rates  in  each  territory 
so  that  the  carriers  will  "under  honest,  efficient  and  econom- 
ical management  and  reasonable  expenditures  for  mainte- 
nance of  way,  structures  and  equipment,  earn  an  aggre- 
gate annual  net  railway  operating  income  equal,  as  nearly 
as  may  be,  to  a  fair  return  upon  the  aggregate  value  of  the 
railway  property  of  such  carriers  held  for  and  used  in  the 
service  of  transportation."  The  Commission  determines 
the  value  of  the  property  devoted  to  transportation,  and 
also  decides  from  time  to  time  what  percentage  of  the  prop- 
erty value  constitutes  a  "fair  return."  The  law  stipulates, 
however,  that  during  the  two  years  following  March  i, 
1920,  the  Commission  shall  take  as  a  fair  return  a  sum 
equal  to  5^  per  cent  of  the  value  of  the  railroad  property, 
but  it  is  authorized,  in  its  discretion,  to  add  a  further  sum 
not  to  exceed  one-half  of  1  per  cent,  to  make  provision  for 
additions,  betterments  and  improvements. 

The  framers  of  the  Transportation  Act  were  confronted 
with  many  difficulties  in  devising  a  rule  of  rate  making  for 
the  Commission  to  follow.  The  most  serious  problem 
arose  from  the  fact  that  the  railroads  of  the  United  States 
are  by  no  means  on  an  equal  basis  with  respect  to  oppor- 
tunities to  obtain  traffic  and  with  respect  to  costs  of  opera- 
tion. In  the  same  sections  of  the  country  may  be  found 
"weak"  roads,  which  serve  districts  that  yield  compara- 
tively little  traffic  and  which  have  high  operating  costs,  and 
"strong"  roads,  which  have  large  gross  receipts  and  rela- 
tively low  operating  costs.  Congress  recognized  the  fact 
that  rates  on  competitive  traffic  must  be  uniform.  If  the 
rates  in  any  region  are  made  high  enough  to  enable  the 
weak  roads  to  prosper,  the  strong  roads  will  inevitably 
obtain  excessive  revenues,  while  if  the  rates  are  established 


TRANSPORTATION  ACT  OF  1920  519 

upon  a  basis  which  affords  a  fair  return  for  the  strong 
roads,  the  weak  roads  will  soon  become  bankrupt.  Cor  - 
gress  acknowledged  the  necessity  of  preserving  the  weak 
roads,  because  they  are  "indispensable  to  the  communities 
to  which  they  render  the  services  of  transportation" ;  at 
the  same  time  it  was  clear  that  a  system  of  uniform  rates 
which  would  sustain  the  weak  roads  would  enable  the 
strong  roads  to  "receive  a  net  railway  operating  income 
substantially  and  unreasonably  in  excess  of  a  fair  return 
upon  the  value  of  their  railway  property."  In  an  effort  to 
solve  this  problem  there  was  included  in  the  Transportation 
Act  a  provision  that  a  carrier  receiving  in  any  year  a  net 
railway  operating  income  in  excess  of  6  per  cent  should 
turn  over  one-half  of  the  excess  income  to  the  Interstate 
Commerce  Commission.  The  half  retained  by  the  carriers 
is  to  be  placed  in  a  reserve  fund.  The  reserve  fund  of  any 
carrier  need  not  be  accumulated  beyond  a  sum  equal  to 
5  per  cent  of  the  value  of  its  property.  When  a  fund  of 
5  per  cent  is  attained  the  carrier  may  dispose  of  its  por- 
tion of  annual  excess  income  in  any  lawful  manner.  In 
years  when  its  net  railway  operating  income  falls  below  6 
per  cent  it  may  draw  upon  the  reserve  fund  for  the  pur- 
pose of  paying  interest  and  dividends.  The  excess  earn- 
ings which  the  carriers  turn  over  to  the  Commission  con- 
stitute a  "general  railway  contingent  fund."  It  may  be 
used  to  make  loans  to  carriers  which  need  funds  for  cap- 
ital expenditures,  or  the  Commission  may  use  it  to  pur- 
chase transportation  facilities  and  equipment  to  be  leased 
to  carriers  under  such  conditions  as  the  Commission  may 
deem  proper. 

To  a  great  many  members  of  Congress  it  appeared  that 
the  proper  solution  of  the  problem  of  the  "strong"  and 
"weak"  railroads  was  to  require  that  all  the  roads  be  con- 
solidated into  a  limited  number  of  great  competitive  sys- 
tems.    The  Cummins  bill  provided  for  the  compulsory  con- 


520  RAILROAD  TRANSPORTATION 

solidation  of  the  railways  into  not  less  than  twenty  nor 
more  than  thirty-five  great  systems.  In  the  final  measure 
the  compulsory  feature  of  the  Cummins  bill  was  eliminated, 
but  the  Interstate  Commerce  Commission  was  directed  to 
"prepare  and  adopt  a  plan  for  the  consolidation  of  the  rail- 
way properties  of  the  continental  United  States  into  a  lim- 
ited number  of  systems."  It  was  stipulated  that  competi- 
tion should  be  preserved  as  fully  as  possible;  that,  wher- 
ever practicable,  existing  routes  and  channels  of  trade 
should  be  maintained ;  and  that  the  several  systems  should 
be  so  arranged  that  the  costs  of  transportation  as  between 
competitive  systems  and  as  related  to  the  value  of  railway 
property  should  be  the  same,  as  far  as  practicable,  so  that 
the  systems  could  employ  uniform  rates  on  competitive 
traffic  and  under  efficient  management  earn  substantially 
the  same  rate  of  return.  When  the  Commission  has  agreed 
upon  a  tentative  plan  of  consolidation  it  is  to  be  made  pub- 
lic and  a  formal  hearing  is  to  be  held,  at  which  all  objections 
to  the  tentative  plan  may  be  presented.  Thereafter  the 
Commission  will  adopt  a  definite  plan  for  consolidation. 
The  carriers  may  then  voluntarily  make  consolidations  in 
harmony  with  the  Commission's  plan.  The  Commission 
is  now  preparing  its  plan  of  consolidation.  It  is  highly 
probable  that  when  its  work  is  completed  a  law  will  be 
passed  requiring  the  compulsory  combination  of  the  rail- 
roads into  the  systems  proposed  by  the  Commission. 

The  other  amendments  to  the  Interstate  Commerce  Law, 
contained  in  the  Transportation  Act,  consisted  largely  of 
provisions  giving  new  powers  of  regulation  to  the  Inter- 
state Commerce  Commission.  The  most  important  addi- 
tional powers,  those  authorizing  the  Commission  to  regu- 
late the  capitalization  of  railroads  and  giving  the 
Commission  a  large  measure  of  control  over  intrastate 
rates,  have  been  discussed  in  previous  chapters.  An  im- 
portant addition  to  the  rate  making  power  of  the  Commis- 


TRANSPORTATION  ACT  OF  1920  521 

sion  was  that  it  received  authority  to  name  minimum  as 
well  as  maximum  rates.  Whereas  before  1920  the  Com- 
mission could  only  prescribe  rates  which  the  carriers  should 
observe  as  a  maximum,  it  may  now  prescribe  the  exact 
rates  which  carriers  may  charge  for  particular  services. 
If  rival  carriers  should  now  endeavor  to  engage  in  a  rate 
war  it  is  possible  for  the  Commission  to  bring  their  de- 
structive competition  to  an  end  and  require  them  to  charge 
uniform  rates  sufficiently  high  to  preserve  their  financial 
stability. 

The  authority  which  the  Esch  car  service  act  of  April, 
1 91 8,  gave  to  the  Interstate  Commerce  Commission  was 
somewhat  amplified  in  the  Transportation  Act.  The  Com- 
mission may  give  orders  with  respect  to  the  distribution  of 
cars,  and  in  time  of  emergency  may  exercise  arbitrary  con- 
trol over  the  car  service  of  the  railroads.  The  control  of 
the  Commission  over  railroad  facilities  was  also  extended 
by  requiring  the  carriers  to  obtain  from  the  Commission  a 
certificate  of  public  convenience  before  undertaking  the 
construction  of  any  extensions  or  branch  lines.  The  Com- 
mission was  given  the  power,  in  another  amendment,  to 
require  one  carrier  to  permit  the  use  of  its  terminal  facili- 
ties by  another  carrier,  on  such  terms  as  the  carriers  may 
themselves  agree  upon,  or  in  the  event  of  a  failure  to 
agree,  upon  such  terms  as  the  Commission  may  fix  as  just 
and  reasonable.  The  economies  which  the  Railroad  Ad- 
ministration achieved  during  the  period  of  Federal  con- 
trol by  the  unification  of  terminal  facilities  constituted  the 
chief  reason  for  giving  the  Commission  this  important 
power.  There  are  many  large  shipping  centers  in  the 
United  States  in  which  the  railroad  service  could  be  greatly 
improved  if  the  carriers  would  cooperate  to  a  greater  de- 
gree in  the  use  of  their  freight  and  passenger  terminals. 

In  one  important  respect  the  authority  of  the  Interstate 
Commerce  Commission  was  curtailed.     In  the  Mann-Elkins 


522  RAILROAD  TRANSPORTATION 

Law  of  1910  the  Commission  was  authorized  to  suspend 
proposed  changes  in  rates  for  an  initial  period  of  120  days, 
and  then  for  a  further  period  of  six  months,  pending  an 
investigation  of  the  reasonableness  of  the  proposed 
changes.  In  all  the  advanced  rate  cases  from  1910  to  191 7 
the  Commission  consumed  much  time  in  reaching  its  deci- 
sions. The  railroad  managers  protested  against  the  delay. 
They  were  all  strongly  in  favor  of  shortening  the  time  of 
suspension,  and  most  of  them  were  in  favor  of  depriving 
the  Commission  of  the  authority  to  suspend  proposed 
changes  in  rates.  While  the  Commission  retains  its  power 
of  suspension,  the  Transportation  Act  provides  that  the 
second  period  of  suspension  shall  not  be  longer  than  thirty 
days.  If  the  Commission  finds  it  impossible  to  reach  a  con- 
clusion with  respect  to  the  proposed  rates  within  150  days, 
the  rates  go  into  effect.  If  the  new  rates  increase  the 
charges  for  the  transportation  of  freight,  the  Commission 
may  require  the  interested  carriers  to  keep  an  accurate 
account  of  all  amounts  received  by  reason  of  any  increase, 
and  when  a  decision  is  reached,  may  order  the  carriers  to 
refund,  with  interest,  such  part  of  the  increased  charges 
as  may  be  found  not  justified. 

The  membership  of  the  Interstate  Commerce  Commis- 
sion was  increased  to  eleven  by  the  Transportation  Act,  and 
the  salary  of  each  Commissioner  was  advanced  to  $12,000 
a  year. 

The  most  important  changes  in  the  Interstate  Commerce 
Act,  other  than  those  already  mentioned,  were  a  modifica- 
tion of  the  antipooling  clauses  in  section  5,  and  a  modifica- 
tion of  the  long-and-short  haul  rule  of  section  4.  The  legal- 
ization of  pools  was  discussed  in  Chapter  XIX.  The 
prohibition  against  charging  more  for  a  short  haul  than 
for  a  long  haul,  on  the  same  line  and  in  the  same  direction, 
the  shorter  being  included  within  the  longer  distance,  with- 
out the  express  approval  of  the  Interstate  Commerce  Com- 


TRANSPORTATION  ACT  OF  1920  523 

mission,  was  continued,  but  certain  limits  were  set  as  to 
the  extent  of  discrimination  permissible.  As  the  law  now 
stands  the  Commission  may  not  permit  the  establishment 
of  a  charge  to  or  from  the  more  distant  point  that  is  not 
reasonably  compensatory  for  the  service  performed ;  and 
if  "a  circuitous  rail  line  or  route  is,  because  of  such  circuity, 
granted  authority  to  meet  the  charges  of  a  more  direct  line 
or  route  to  or  from  competitive  points  and  to  maintain 
higher  charges  to  or  from  the  intermediate  points  on  its 
line,  the  authority  shall  not  include  intermediate  points  as 
to  which  the  haul  of  the  petitioning  line  or  route  is  not 
longer  than  that  of  the  direct  line  or  route  between  the 
competitive  points."  Furthermore,  authority  to  charge 
more  for  the  shorter  haul  than  for  the  longer  may  not  be 
granted  on  account  of  "merely  potential  water  competition 
not  actually  in  existence." 

On  March  I,  1920,  the  railroads  were  returned  to  their 
owners  and  private  operation  was  resumed.  The  return 
did  not  take  place,  however,  under  favorable  conditions. 
The  rolling  stock  of  the  individual  railroads  had  been  dis- 
persed and  scattered  throughout  the  country ;  the  proper- 
ties of  many  companies  showed  the  results  of  undermain- 
tenance  during  the  period  of  Federal  control ;  the  costs  of 
operation  were  so  high  that  notwithstanding  the  large 
amount  of  traffic  hauled,  most  of  the  roads,  both  large  and 
small,  showed  an  operating  deficit ;  and  the  railway  labor- 
ers, whose  wages  had  been  increased  but  little  in  191 9, 
were  clamoring  for  higher  wages  to  offset  the  increase  in 
the  cost  of  living.  The  financial  stability  of  the  carriers 
for  the  six  months  following  March  1  was  insured  by  the 
government  guarantee,  but  it  was  obviously  necessary  that 
some  provision  be  made  for  the  time  when  the  aid  of  the 
Federal  Treasury  would  no  longer  be  available. 

The  most  pressing  problem  at  the  time  when  Federal 
control  terminated  was  the  labor  problem.    During  the  later 


524  RAILROAD  TRANSPORTATION 

months  of  1919  there  had  been  several  "unauthorized 
strikes" — strikes  not  called  by  the  action  of  labor  organ- 
izations— among  certain  classes  of  employees,  who  felt 
that  their  compensation  was  inadequate.  These  strikes  had 
been  brought  to  an  end  by  the  firm  action  of  Director  Gen- 
eral Hines,  but  the  grievances  of  the  workers  had  not  been 
removed.  In  April,  1920,  there  was  a  recurrence  of  strikes 
in  several  large  railway  centers,  so  many  men  quitting  work 
that  the  operation  of  the  leading  eastern  railroads  was 
crippled.  On  April  15  the  Railroad  Labor  Board,  created 
by  the  Transportation  Act,  was  organized,  and  it  proceeded 
at  once  to  enter  upon  a  hearing  of  the  pending  disputes 
between  the  carriers  and  their  employees.  On  July  30  the 
Labor  Board  rendered  its  decision.  Taking  into  account 
the  fact  that  previous  to  1917  railroad  wages  had  not  ad- 
vanced so  rapidly  as  the  cost  of  living  and  that  throughout 
1919  there  had  been  no  substantial  increase  in  pay,  it  or- 
dered a  general  advance  in  the  rate  of  compensation  of 
nearly  all  classes  of  railway  labor.  It  was  estimated  that 
the  decision  added  approximately  $718,000,000  to  the  an- 
nual operating  expenses  of  the  carriers. 

Meanwhile,  the  Interstate  Commerce  Commission  had 
undertaken  its  task  of  initiating  such  railroad  rates  as 
would  enable  the  carriers  to  earn  the  "fair  return"  provided 
for  in  the  Transportation  Act.  It  was  clear  that  it  would 
be  necessary  for  the  Commission  to  make  a  general  increase 
in  rates  and  fares.  After  numerous  hearings  the  Commis- 
sion handed  down  its  decision  on  July  29.  It  assumed  the 
value  of  the  railroad  property  devoted  to  transportation  to 
be  $18,900,000,000  and  endeavored  to  establish  a  body  of 
rates  which  would  yield  a  return  of  6  per  cent  on  this  val- 
uation. Dividing  the  country  into  four  rate  districts — 
Eastern,  Southern,  Western  and  Mountain  Pacific — the 
Commission  ordered  that  freight  rates  be  increased  40  per 
cent  in  the  Eastern  district,  25  per  cent  in  the  Southern, 


TRANSPORTATION  ACT  OF  1920  525 

35  per  cent  in  the  Western  and  25  per  cent  in  the  Mountain 
Pacific.  It  ordered  that  joint  rates  applying  from  any 
one  district  to  another  should  be  advanced  33^  per  cent. 
Passenger  fares,  excess  baggage  rates  and  rates  on  milk 
and  cream  carried  on  passenger  trains  were  increased  20 
per  cent,  and  upon  passengers  traveling  in  Pullman  cars  a 
surcharge  of  50  per  cent  of  the  Pullman  fare  was  imposed, 
the  revenues  from  the  surcharge  to  accrue  to  the  railroad 
companies.  It  was  provided  that  the  new  rates  could  be 
put  into  effect  upon  five  days'  notice  to  the  Commission 
and  to  the  public  by  the  filing  and  posting  of  tariffs  in 
accordance  with  the  rules  of  the  Commission.  In  nearly 
all  cases  the  increases  became  effective  before  the  end  of 
August,  1920. 

The  net  revenues  of  the  carriers  were  so  small  during  the 
period  of  Federal  guaranty  that  the  Government  became 
obligated  to  the  railroads  for  an  amount  approximating 
$600,000,000.  The  operating  ratio  of  the  railroads  as  a 
whole  during  this  period  was  about  95  per  cent,  the  highest 
point  it  had  ever  reached.  Notwithstanding  the  adverse 
conditions  it  was  generally  believed,  when  the  period  of 
Federal  guaranty  ended,  that  the  railroads  would  enter 
upon  a  period  of  prosperity.  The  Commission  had  permit- 
ted a  generous  increase  in  rates,  railway  labor  was  satis- 
fied, and  a  steady  increase  in  the  volume  of  traffic  handled 
during  the  summer  had  shown  that  the  railroads  had  suc- 
ceeded in  reestablishing  their  organizations  and  were  im- 
proving steadily  the  efficiency  of  service. 

The  favorable  outlook  proved  to  be  of  short  duration. 
Had  the  volume  of  traffic  continued  to  grow — or  even  had 
it  remained  undiminished — the  increased  rates  permitted 
by  the  Interstate  Commerce  Commission  might  have  yielded 
the  fair  return  which  the  Transportation  Act  called  for. 
Unfortunately  for  the  railroads,  the  volume  of  traffic  began 
to  show  a  sharp  decline.     During  the  summer  of  1920,  the 


526  RAILROAD  TRANSPORTATION 

period  of  business  expansion  which  followed  the  termina- 
tion of  the  World  War,  reached  its  peak,  and  a  reaction 
set  in.  Prices  began  to  recede,  and  business  activity  stead- 
ily declined.  By  the  close  of  the  year  the  United  States 
was  suffering  from  a  general  business  depression  which 
affected  virtually  all  branches  of  industrial  and  commer- 
cial activity.  Foreign  commerce,  which  had  been  unusu- 
ally active  since  1914,  showed  a  marked  decline,  and  domes- 
tic trade  likewise  was  greatly  contracted.  Factories  and 
mines  curtailed  their  operations,  building  activity  was 
checked,  the  demand  for  the  products  of  the  farms  dimin- 
ished, thousands  of  laborers  were  thrown  out  of  work. 
The  result  of  the  industrial  depression  was  immediately 
reflected  in  a  substantial  decrease  of  the  volume  of  rail- 
road traffic.  For  nearly  five  years  the  shippers  of  the 
United  States  had  suffered  inconvenience  because  of  a 
shortage  of  cars.  The  car  shortage  was  now  succeeded  by 
a  car  surplus,  which  continued  to  grow  until  by  May  I, 
1 92 1,  more  than  400,000  cars,  nearly  one-sixth  of  the  freight 
car  equipment  of  the  railroads,  were  standing  idle  in  the 
railroad  terminals. 

The  railroad  managers  did  what  they  could  to  meet  the 
adverse  conditions  which  confronted  them.  They  econ- 
omized on  maintenance  expenditures,  spent  as  little  as 
possible  on  new  facilities,  and  decreased  their  working 
forces  by  dismissing  thousands  of  employees.  Despite  all 
these  measures  of  economy  there  was  no  perceptible  im- 
provement in  the  railway  situation  during  the  early  months 
of  1 92 1.  The  total  expenses  of  operation  were  reduced,  but 
the  reduction  was  much  less  than  the  decline  in  the  gross 
revenues  of  the  carriers.  The  unfavorable  financial  re- 
ports of  the  leading  roads  caused  a  steady  fall  in  the  value 
of  railway  securities ;  several  roads,  with  records  of  unin- 
terrupted dividend  payments  covering  long  periods  of  time, 
were  compelled  either  to  reduce  or  to  omit  entirely  their 


TRANSPORTATION  ACT  OF  1920  527 

customary  dividends ;  it  was  manifest  that  if  the  gross  rev- 
enues of  the  carriers  could  not  be  materially  increased  or 
the  expenses  of  operation  greatly  reduced  it  would  be  only 
a  question  of  time  until  many  railroad  corporations  would 
be   insolvent. 

An  increase  of  gross  revenues  could  be  effected  only  by 
the  enlargement  of  the  volume  of  traffic  carried  at  existing 
rates  or  by  some  readjustment  of  rates.  With  the  general 
business  situation  such  as  it  was  there  was  small  hope  of 
an  early  advance  in  freight  and  passenger  traffic.  It  was 
the  consensus  of  opinion  among  railroad  officials  and  ship- 
pers that  railroad  rates  were  already  as  high  "as  the  traffic 
would  bear,"  and  any  further  advance  in  charges  could 
not  be  seriously  considered.  In  fact,  it  was  the  opinion  in 
many  sections  of  the  country  that  freight  rates  were  en- 
tirely too  high,  that  the  diminution  of  railroad  traffic  was 
caused  in  part  by  excessive  charges.  There  was  a  disposi- 
tion in  some  quarters  to  ascribe  the  commercial  depression 
to  the  increase  in  freight  rates,  but  it  was  apparent  that 
many  other  causes  had  contributed  to  the  business  reaction, 
which  had  begun,  as  a  matter  of  fact,  before  the  advance 
in  railroad  charges  became  effective.  With  little  prospect 
of  an  early  recovery  of  traffic  the  railroad  managers  turned 
their  attention  to  paring  down  expenses  by  a  readjustment 
of  the  wages  paid  to  railroad  employees.  The  nation-wide 
depression  in  business  had  brought  about  a  marked  decrease 
in  the  cost  of  living  and  also  had  forced  a  reduction  in  the 
wages  of  nearly  all  factory  employees  and  farm  workers. 
The  railway  executives  felt  that  they  were  justified  in 
seeking  a  reduction  of  labor  costs  commensurate  with  the 
reduction  that  had  taken  place  in  other  branches  of  industry. 

The  labor  costs  of  operation  constitute  by  far  the  larg- 
est part  of  the  railroad  expenses,  and  these  costs  in  1920 
and  1921  were  proportionally  much  greater  than  they  had 
been  in  any  previous  years.     In  part'  the  high  labor  costs 


528  RAILROAD  TRANSPORTATION 

were  due  to  high  wages,  and  in  part  they  were  due  to 
"working  agreements"  adopted  during  the  period  of  Fed- 
eral control,  which  resulted  in  the  payment  to  several  classes 
of  labor  of  amounts  entirely  out  of  proportion  to  services 
rendered.  Just  before  the  termination  of  Federal  control 
the  Railroad  Administration  entered  into  several  costly 
agreements  with  the  shop  workers,  maintenance  employees 
and  clerical  forces  of  the  railroads.  These  agreements  pro- 
vided for  excessive  payment  for  overtime  work  and  estab- 
lished rules  which  frequently  made  it  necessary  to  employ 
a  half  dozen  men  to  do  work  which  could  easily  be  accom- 
plished by  a  single  employee.  They  also  eliminated  all 
piece  work  in  railroad  shops,  substituting  in  its  place  pay- 
ment by  the  hour.  The  result  had  been  a  material  decline 
in  the  efficiency  of  shop  service  and  a  large  increase  in  total 
maintenance  costs.  The  railroad  managers  began  an  at- 
tempt, shortly  after  the  period  of  Federal  guaranty  ended, 
to  secure  a  modification  of  these  working  agreements. 

The  Transportation  Act  had  provided  that  the  carriers 
and  their  employees  might  establish  Adjustment  Boards 
to  consider  all  disputes  not  involving  rates  of  wages.  When 
the  question  of  establishing  such  boards  arose,  the  rail- 
road managers  and  the  railroad  labor  unions  differed  as  to 
the  type  of  boards  which  should  be  created.  The  unions 
were  in  favor  of  National  Adjustment  Boards  for  the  dif- 
ferent classes  of  workmen,  while  the  railroad  officials, 
mindful  of  the  different  conditions  existing  on  different 
roads,  desired  Adjustment  Boards  for  each  railroad  sys- 
tem, or  at  most,  a  number  of  regional  boards.  The  oppos- 
ing groups  failed  to  reach  an  agreement,  and  the  Railroad 
Labor  Board  held  that  the  question  of  what  kind  of 
Adjustment  Boards  should  be  created  was  not  a  question 
which  it  was  authorized  to  decide.  The  result  was  that 
no  Adjustment  Boards  were  created.  At  the  time  the 
Railroad   Labor    Board   held   its   hearings   concerning   the 


TRANSPORTATION  ACT  OF  1920  529 

advance  in  wages,  in  1920,  the  matter  of  continuing  the 
national  agreements  was  presented  for  consideration.  In 
its  decision  of  July  20  the  Board  declined  to  modify  the 
agreements  because  there  had  been  insufficient  time  for 
adequate  consideration.  It  ordered  that  the  national  agree- 
ments be  continued  in  effect  and  announced  that  a  further 
hearing  would  be  held  as  to  their  reasonableness.  The 
Labor  Board  entered  upon  a  hearing  of  the  dispute  relating 
to  the  working  agreements  early  in  January,  1921.  On 
January  31,  the  representative  of  the  railway  executives, 
asserting  that  the  financial  condition  of  the  railroads  was 
becoming  so  alarming  that  summary  action  was  needed  to 
prevent  a  general  collapse,  urged  that  the  Board  order  all 
rules  and  working  agreements  entered  into  by  the  Railroad 
Administration  to  be  terminated  at  once  and  that  the  rules 
in  effect  when  Federal  control  began  be  reestablished.  He 
also  asked  that  the  Board  set  aside  its  decision  of  July  20, 
1920,  as  to  what  constituted  reasonable  wages  for  unskilled 
labor  and  substitute  the  prevailing  rate  of  wages  in  the 
various  regions  served  by  any  carrier. 

The  Labor  Board,  in  a  decision  issued  February  10, 
declined  to  set  aside  the  national  agreements  and  substitute 
therefor  the  rules  existing  at  the  time  Federal  control 
began,  on  the  ground  that  in  its  decisions  it  was  bound  by 
the  terms  of  the  Transportation  Act  to  establish  working 
conditions  which  in  its  opinion  were  just  and  reasonable. 
Since  no  evidence  had  been  offered  as  to  the  reasonable- 
ness of  the  working  conditions  which  the  railway  managers 
asked  to  have  restored,  it  could  not  legally  take  the  action 
urged  by  the  cerriers.  It  likewise  refused  to  order  into 
effect  a  lower  rate  of  wages  for  unskilled  labor  on  the 
ground  that  it  could  not  consider  disputes  over  wages  until 
the  carriers  had  endeavored,  in  accordance  with  the  terms 
of  the  Transportation  Act,  to  settle  disputes  by  conference 
with  their  workmen.     No  conferences  had  been  held  with 


530  RAILROAD  TRANSPORTATION 

respect  to  the  reductions  which  the  carriers  asked  on  Jan- 
uary 31. 

After  this  decision  was  rendered  the  Labor  Board  con- 
tinued its  hearing  on  the  question  of  modifying  the  national 
agreements.  The  managers  of  the  various  railways  called 
conferences  with  the  various  classes  of  employees  and  pro- 
posed to  their  workmen  a  general  reduction  of  wages.  In 
nearly  all  cases  the  workmen  refused  to  accept  the  sug- 
gested reductions,  and  the  carriers  filed  petitions  with  the 
Labor  Board. 

On  April  14  the  Labor  Board  reached  a  decision  on  the 
question  of  working  rules.  It  ordered  that  the  national 
agreements  adopted  during  the  period  of  Federal  control 
be  abrogated  on  July  1,  1921,  and  directed  that  before  that 
time  the  carriers  endeavor  to  negotiate  with  their  employees 
a  new  and  "reasonable"  system  of  rules.  The  Board  an- 
nounced that  in  case  of  the  failure  of  the  carriers  to  reach 
an  agreement  with  their  employees  it  would  promulgate 
such  rules  as  it  deemed  just  and  reasonable  as  soon  as  pos- 
sible after  July  1.  In  rendering  its  decision  the  Board  laid 
down  certain  general  principles  for  the  carriers  to  follow 
in  establishing  new  working  agreements.  It  upheld  the 
right  of  the  carriers  to  maintain  necessary  discipline,  rec- 
ognized the  right  of  the  employees  to  organize  and  carry 
on  negotiations  through  representatives  of  their  own  choos- 
ing, declared  that  the  laborers  had  a  right  to  be  consulted 
concerning  any  proposed  change  in  rules  or  wages,  ap- 
proved the  principle  of  the  eight-hour  day,  and  urged  the 
necessity  of  complete  cooperation  between  workmen  and 
employers. 

Following  the  decision  on  the  question  of  working  agree- 
ments the  Board  took  up  the  numerous  appeals  which  the 
carriers  had  filed  concerning  the  reduction  of  wages.  On 
May  17  the  Board  published  a  resolution  declaring  that  it 
was  necessary,  and  likewise  just,  both  to  the  carriers  and 


TRANSPORTATION  ACT  OF  1920  531 

their  employees,  that  some  reduction  be  made  in  the  pre- 
vailing rates  of  wages,  basing  its  decision  primarily  upon 
the  fact  that  there  had  been  a  material  decline  in  the  cost 
of  living  since  it  had  given  its  wage  decision  the  previous 
year.  It  did  not  at  this  time  give  a  decision  as  to  what 
reduction  it  considered  reasonable,  but  on  June  i,  an- 
nounced a  new  schedule  of  wages,  to  take  effect  a  month 
later.  The  new  schedule  provided  for  a  general  reduction 
of  about  12  per  cent  in  the  wages  of  railroad  employees. 

The  plight  of  the  railroads  became  so  serious  during  the 
early  months  of  1921  that  Congress  adopted  a  resolution 
providing  for  a  general  inquiry  into  the  entire  railroad  sit- 
uation. This  inquiry  was  due  not  only  to  the  financial 
reverses  of  the  carriers  but  also  to  a  widespread  demand 
among  agricultural,  lumbering,  and  mining  interests  that 
the  level  of  railroad  rates  be  reduced  in  conformity  with 
the  general  decline  of  commodity  prices.  The  Congres- 
sional investigation  began  in  May,  1921.  It  is  not  unlikely 
that  the  investigation  will  result  in  further  legislation  for 
the  purpose  of  improving  the  financial  stability  of  the 
carriers. 

With  declining  costs  of  operation  and  with  favorable 
prospects  for  a  revival  of  general  business  prosperity  the 
outlook  for  the  railroads  is  considerably  brighter  than  it 
has  been  at  any  time  since  the  termination  of  Federal  con- 
trol. But  the  transportation  system  will  probably  suffer 
for  several  years  to  come  from  the  unfortunate  conditions 
that  it  was  subjected  to  during  the  war  and  during  the 
period  of  reconstruction.  The  misfortunes  of  the  railroads 
have  been  clue  in  a  large  measure  to  the  unwise  financial 
policy  of  the  Railroad  Administration.  There  was  no  jus- 
tification for  the  Administration's  policy  of  operating  the 
railroads  at  a  loss.  While  the  war  was  in  progress  the 
costs  of  operation  in  all  kinds  of  business  mounted  at  a 
rapid  rate,  but  in  all  industries  except  the  railroad  business, 


532  RAILROAD  TRANSPORTATION 

prices  were  advanced  to  such  an  extent  that  not  only  were 
the  leading  business  establishments  able  to  make  large  prof- 
its but  they  were  able  to  accumulate  a  handsome  surplus 
with  which  to  tide  over  the  initial  stages  of  the  period  of 
reaction,  when  costs  for  a  time  were  outrunning  revenues. 
Instead  of  accumulating  a  surplus  for  the  use  of  the  rail- 
roads the  Railroad  Administration  kept  rates  unreasonably 
low  and  incurred  a  deficit.  When  the  railroad  owners 
assumed  control  of  their  properties  they  were  compelled  to 
put  railroad  rates  up,  just  at  the  time  when  prices  in  all 
other  lines  of  business  were  coming  down.  This  action  had 
an  unfavorable  influence  upon  business,  and  it  also  was  an 
obstacle  to  securing  the  consent  of  the  railroad  workers  to 
necessary  reductions  in  wages.  Had  railroad  rates  been 
advanced  during  Federal  control  to  the  same  extent  that 
commodity  prices  had  been  advanced,  the  Government 
would  have  suffered  no  loss ;  it  would  have  accumulated  a 
large  fund  to  tide  the  carriers  over  during  the  period  of 
business  depression ;  it  would  have  been  possible  to  reduce 
rates  in  1920  instead  of  advancing  them ;  the  establishment 
of  a  lower  wage  level  would  have  been  an  easier  achieve- 
ment, and  the  reduction  of  rates  would  have  had  a  stabi- 
lizing and  perhaps  a  stimulating  effect  upon  business, 
whereas  the  advance  of  rates  only  tended  to  accentuate 
the  business  depression.  It  was  a  grave  error  to  permit 
the  current  of  railroad  finance  to  run  counter  to  the  cur- 
rent in  other  branches  of  economic  activity.  To  remove  the 
effects  of  this  error  it  may  be  necessary  for  the  Govern- 
ment to  extend  financial  aid  to  the  railroads  by  funding  the 
obligations  of  the  carriers  to  the  government,  or  by  making 
long-time  loans  bearing  a  low  rate  of  interest. 

Whatever  may  be  the  trend  of  the  railroad  situation  in 
the  immediate  future,  it  must  not  be  supposed  that  the 
railroad  system  of  the  United  States  will  be  permitted  to 
undergo  physical  and  financial  collapse.     Of  all  the  great 


TRANSPORTATION  ACT  OF  1920  533 

economic  activities  of  the  country  none  is  so  indispensable 
as  adequate  transportation.  The  Transportation  Act  gives 
evidence  that  Congress  is  disposed  to  adopt  a  constructive 
policy  under  which  the  railroad  business  will  become  strong 
and  prosperous,  so  that  it  can  expand  at  a  normal  rate, 
maintain  its  credit,  and  serve  the  needs  of  the  nation.  The 
law  has  been  in  effect  but  a  short  time  and  conditions  have 
been  so  abnormal  that  it  is  yet  impossible  to  determine 
whether  further  legislation  will  be  necessary.  It  would  be 
unwise  to  make  any  radical  changes  until  the  present  law 
has  been  adequately  tested  under  normal  conditions. 

REFERENCES 

United  States  Congress.  House  Committee  on  Interstate  and 
Foreign  Commerce,  Hearings  on  the  Return  of  the  Rail- 
roads to  Private  Ownership.     3  vols.,  1919. 

Interstate  Commerce  Commission,  The  Interstate  Commerce 
Act,  1920.  (Contains  all  Federal  laws  for  regulation  of 
rates  and  services  of  railroads,  including  the  Transporta- 
tion Act.) 

Johnscn,  Emory  R.  The  Problem  of  Railroad  Control.  Politi- 
cal S.icr.re  Quarterly,  September,  1921. 


CHAPTER  XXX 

THE  COURTS   AND  RAILROAD   REGULATION 

Laws  are  partly  court  made,  534.  Function  of  the  judiciary  in 
railroad  regulation,  536.  Development  of  judicial  review,  536. 
State  rate  regulation,  537.  The  relation  of  the  courts  to  un- 
reasonable rates  made  by  railroad  companies,  541.  Injunc- 
tions to  prevent  rate  advances,  543.  Injunctions  to  prevent  rate 
wars,  544.  Injunctions  against  secret  rebates,  547.  Injunctions 
and  labor  disputes,  548.  The  general  law  regarding  strikes,  548. 
Injunctions  to  protect  property  and  personal  rights,  549.  In- 
junctions compelling  railroad  employees  to  work,  550.  Use  of 
the  injunction  in  the  Debs  strike  of  1894,  551.  Regulation  of 
the  use  of  the  injunction  by  the  Clayton  Antitrust  Act,  553. 
Railroad  receiverships,  554.  Railroad  insolvency  in  the  United 
States,  556.  Causes  of  railroad  insolvency,  557.  Objections  to 
the  present  system  of  railroad  receiverships,  559.  Suggested 
changes,  560.     References,  561. 

The  function  of  regulating  railroads  is  shared  jointly 
by  all  three  branches  of  the  Government — the  executive, 
legislative,  and  judicial.  The  scope  and  limits  of  the 
legislative  powers  of  railroad  regulation  have  been  fixed 
by  the  courts,  and  the  courts  have  so  modified  both  State 
and  national  legislation  as  virtually  to  have  shared  with 
the  law-making  branch  of  the  State  legislatures  and  with 
Congress  the  exercise  of  legislative  functions.  Much  law 
is  accurately  styled  court-made,  and  this  is  particularly 
true  of  the  laws  regulating  railways. 

This  influence  of  the  courts  upon  the  laws  regulating 
railways  is  strikingly  illustrated  by  the  decision  of  the 
Supreme  Court  in  United  States  v.  Trans-Missouri  Freight 
Association  (166  U.  S.  290),  in  which  the  court  decided 

534 


COURTS  AND  RAILROAD  REGULATION    535 

that  the  Sherman  Antitrust  law  of  July  2,  1890,  ap- 
plied to  railway  companies,  and  made  illegal  the  agree- 
ments of  competing  railway  companies  for  the  maintenance 
of  reasonable  rates.  This  law  was  not  generally  supposed 
to  apply  to  railway  rate  agreements.  Indeed,  this  view  of 
the  law  was  entertained  by  the  United  States  Circuit  Court 
and  the  Circuit  Court  of  Appeals  in  the  Trans-Missouri 
Freight  Association  case ;  but  the  Supreme  Court  by  a  close 
decision — five  judges  approving,  four  dissenting — decided 
that  the  law  of  1890  made  unlawful  all  agreements  between 
rival  railroads  for  the  maintenance  of  reasonable  rates. 
The  interpretation  thus  put  upon  the  law  by  the  Supreme 
Court  compelled  the  reorganization  of  railway  traffic  asso- 
ciations, modified  the  methods  of  railway  management,  and 
gave  a  new  phase  to  the  governmental  regulation  of  rail- 
roads. 

The  division  of  the  functions  of  government  in  the  United 
States  among  its  three  branches — the  legislative,  executive, 
and  judicial — while  sharply  drawn,  is  not  complete.  The 
legislature  exercises  executive  functions,  the  executive  par- 
ticipates in  legislation,  and  the  judiciary  by  interpreting  and 
applying  the  laws  validates  or  invalidates  laws  and  restricts 
or  widens  the  scope  of  legislation.  The  courts  also  cooper- 
ate with  the  executive  in  the  enforcement  of  laws.  The 
powers  of  the  judiciary  as  regards  transportation  and  all 
other  subjects  are  derived  from  three  sources :  the  or- 
ganic law  of  the  constitutions,  the  statutory  laws,  and 
the  common  law.  The  national  and  State  constitutions 
confer  upon  the  judiciary  the  general  power  of  inter- 
preting and  applying  the  law,  and  enumerate  the  sub- 
jects over  which  the  courts  shall  have  jurisdiction.  The 
powers  over  railways  conferred  upon  the  courts  by  State 
and  Federal  statutes  are  given  in  the  three  preceding  chap- 
ters. The  courts  are  required  to  assist  the  commissions, 
State    and    Federal,    by    compelling    recalcitrant    witnesses 


53G  RAILROAD  TRANSPORTATION 

to  appear  and  testify  before  those  bodies ;  the  State's  at- 
torneys are  the  officers  charged  with  the  duty  of  prose- 
cuting the  violators  of  laws  for  the  regulation  of  rail- 
ways, and  for  prosecuting  those  who  disobey  or  ignore 
the  orders  of  the  commissions;  the  Federal  statute  of  1887 
made  the  validity  of  the  commission's  orders  dependent 
upon  the  decrees  of  the  courts,  and  by  doing  this  it  made 
the  courts  what  Congress  had  no  intention  of  making 
them — joint  investigators  with  the  commission  of  the  facts 
concerning  transportation  questions  arising  under  the  law. 
This  was  wisely  changed  in   1906. 

The  power  of  railway  regulation  which  the  judiciary 
has  in  its  equity  powers  is  far  greater  than  its  statutory 
powers,  and  of  much  more  significance  to  the  public  wel- 
fare. The  authority  which  the  courts  have  been  given 
by  statutes  is  definite  and  fixed,  but  the  scope  of  equity 
jurisdiction,  except  where  determined  at  certain  points  by 
law,  may  be  extended  at  the  will  of  the  judiciary.  Indeed, 
the  rapid  extension  of  the  equity  powers  of  the  courts 
is  the  most  characteristic  fact  of  the  past  century's  legal 
history. 

It  has  been  in  the  exercise  of  their  equity  powers  over 
three  subjects  that  the  courts  have  exerted  their  strongest 
influence  upon  governmental  regulation  of  railways.  Those 
three  subjects  are  (1)  the  fixing  of  rates  and  fares  by 
governmental  authority;  (2)  the  intervention  of  the  govern- 
ment in  railway  labor  disputes;  and  (3)  railway  receiver- 
ships or  the  management  of  insolvent  railroads  by  the 
courts. 

A  court  has  no  authority  to  make  railway  rates  but  it 
has  the  power  to  unmake  rates  established  by  legislative 
authority.  When  either  the  State  or  the  Federal  Govern- 
ment makes  an  order  establishing  rates  to  be  observed  by 
the  railroads,  such  an  order  may  be  set  aside  by  an  injunc- 
tion  issued  by  a   court  of  competent  jurisdiction.     State 


COURTS  AND  RAILROAD  REGULATION'    537 

courts  are  confined  to  the  consideration  of  rates  on  intra- 
state traffic  only,  but  the  Federal  courts  may  determine  the 
reasonableness  of  the  rates  made  either  by  State  or  by 
Federal  legislative  authority.  That  is,  the  Federal  judiciary 
has  original  jurisdiction  over  rate  regulations  established 
by  Congress  acting  through  the  Interstate  Commerce  Com- 
mission, or  by  State  legislatures  acting  directly  by  statutory 
requirements  or  through  State  commissions. 

The  attitude  of  the  Federal  courts  towards  rates  fixed  by 
State  law  has  had  an  interesting  course  of  development. 
When  the  American  States  began  to  exercise  the  function 
of  fixing  rates,  the  railroad  companies  sought  to  prove 
that  the  railway  companies  alone,  and  not  the  State  legis- 
latures, had  the  power  to  fix  charges,  and  that  if  a  shipper 
or  passenger  considered  himself  to  have  been  overcharged, 
his  recourse  must  be  to  the  courts  and  not  to  the  legisla- 
ture. In  the  famous  "granger  cases,"  decided  in  1877,  which 
were  the  first  suits  in  which  the  right  of  the  State  legisla- 
ture to  establish  rates  was  questioned,  the  railroad  com- 
panies claimed  "that  the  owner  of  property  is  entitled  to  a 
reasonable  compensation  for  its  use,  even  though  it  be 
clothed  with  a  public  interest,  and  that  what  is  reasonable 
is  a  judicial  and  not  a  legislative  question."  (Munn  v. 
Illinois,  94  U.  S.  114.)     The  reply  of  the  court  was: 

In  countries  where  the  common  law  prevails,  it  has  been 
customary  from  time  immemorial  for  the  Legislature  to  declare 
what  shall  be  a  reasonable  compensation  under  such  circum- 
stances, or,  perhaps  more  properly  speaking,  to  fix  a  maximum 
beyond  which  any  charge  made  would  be  unreasonable.  .  .  . 
The  controlling  fact  is  the  power  to  regulate  at  all.  If  that 
exists,  the  right  to  establish  the  maximum  of  charge,  as  one 
of  the  means  of  regulation,  is  implied.  .  .  .  We  know  that 
this  is  a  power  which  may  be  abused ;  but  that  is  no  argument 
against  its  existence.  For  protection  against  abuse  by  the 
Legislatures  the  people  must  resort  to  the  polls,  not  to  the  courts. 


538  RAILROAD  TRANSPORTATION 

In  another  of  the  same  group  of  cases  (C.  B.  &  Q.  R.  R. 
Co.  v.  Cutts,  94  U.  S.  155),  involving  the  validity  of  the 
Iowa  law  regulating  railroad  rates,  the  Supreme  Court  up- 
held the  power  of  the  State  to  fix  charges  and  declared  that 
railroads  were  subject  to  legislative  control  as  to  their 
rates  and  fares  unless  specifically  protected  by  their  char- 
ters ;  while  in  still  another  case  (Peik  v.  Chicago  and  North- 
western Rlwy.  Co.,  94  U.  S.  164)  the  court  upheld  a  Wis- 
consin statute  which  provided  maximum  charges  not  only 
upon  the  interior  traffic  of  that  State  but  upon  interstate 
traffic  entering  and  leaving  Wisconsin.1  The  court  again, 
declared : 

Where  property  has  been  clothed  with  a  public  interest,  the 
legislature  may  fix  a  limit  to  that  which  shall  in  law  be  reason- 
able for  its  use.  This  limit  binds  the  courts  as  well  as  the 
people.  If  it  has  been  improperly  fixed,  the  legislature,  not  the 
courts,  must  be  appealed  to  for  the  change. 

In  the  next  important  group  of  cases  testing  the  validity 
of  State  laws  for  the  regulation  of  rates,  the  Mississippi 
Railroad  Commission  cases  (116  U.  S.  307-347),  decided 
in  1885,  the  Supreme  Court  declared  that  a  charter  which 
granted  to  a  railroad  company  the  power  "from  time  to 
time  to  fix,  regulate  and  receive  the  toll  and  charges"  to 
be  secured  for  transportation  did  not  deprive  the  State 
of  the  right,  within  the  limits  of  its  general  authority,  to 
declare  what  rates  should  be  deemed  reasonable.  But 
though  upholding  the  power  of  a  State  to  regulate  transpor- 
tation charges  the  court  made  the  following  extremely 
significant  observation : 

From  what  has  thus  been  said  it  is  not  to  be  inferred  that 
this   power  of  limitation  or  regulation   is  itself  without  limit. 

1  This  power  to  fix  charges  on  interstate  traffic  was  denied  the 
States  in  the  Wabash  case  of  1886  (118  U.  S.  557).     See  p.  478. 


COURTS  AND  RAILROAD  REGULATION    539 

This  power  to  regulate  is  not  a  power  to  destroy,  and  limi- 
tation is  not  the  equivalent  of  confiscation.  Under  pretense 
of  regulating  fares  and  freights,  the  State  cannot  require  a 
railroad  corporation  to  carry  persons  or  property  without  re- 
ward ;  neither  can  it  do  that  which  in  law  amounts  to  a  taking 
of  private  property  for  public  use  without  just  compensation, 
or  without  due  process  of  law. 

Five  years  later,  in  1890,  in  the  Minnesota  Railroad  and 
Warehouse  Commission  case  (C.  M.  &  St.  P.  R.  R.  Co.  v. 
Minnesota,  134  U.  S.  418),  the  Supreme  Court  annulled 
as  unconstitutional  a  Minnesota  law  which  permitted  a 
commission  to  establish  railroad  rates  which  were  to  be 
final,  and  forbade  the  courts  to  interfere  with  the  orders 
of  the  commission.  The  court  declared  that  "the  question 
of  the  reasonableness  of  a  rate  of  charge  for  transportation 
by  a  railroad  company  ...  is  eminently  a  question  for 
judicial  investigation,  requiring  due  process  of  law  for  its 
determination."  Four  years  later  in  the  case  of  Reagan  v. 
Farmers  Lean  and  Trust  Company  (154  U.  S.  362),  the 
Supreme  Court  again  asserted  the  right  of  the  judiciary 
to  pass  upon  the  reasonableness  of  rates  fixed  by  law,  and 
sustained  a  portion  of  a  decision  of  the  United  States 
Circuit  Court  for  the  Western  District  of  Texas,  which 
actually  set  aside  certain  rates  established  by  the  Texas 
Railroad  Commission  because  they  were  so  low  as  to  violate 
the  fourteenth  amendment  of  the  Federal  Constitution  which 
declares  that  no  "State  shall  deprive  any  person  of  life, 
liberty,  or  property  without  due  process  of  law." 

Another  important  assertion  of  its  equity  powers  over 
railway  charges  was  made  by  the  Supreme  Court  in  1898. 
A  Nebraska  statute,  passed  in  1893,  fixing  "reasonable 
maximum  rates  to  be  charged  for  the  transportation  of 
freights,"  gave  the  railroad  companies  of  the  State  the 
right  to  bring  action  in  the  Supreme  Court  of  the  State 


540  RAILROAD  TRANSPORTATION 

to  test  the  reasonableness  of  the  rates  fixed  by  the  legis- 
lature. If  the  court  considered  the  rates  to  be  unrea- 
sonably low  and  unjust,  it  could  order  the  State  Board  of 
Transportation  to  raise  the  rates.  The  constitutionality 
of  the  law  was  soon  tested.  The  railway  companies  took 
the  ground  that  the  rates  fixed  by  the  Nebraska  statute 
were  unreasonably  low,  and  certain  of  their  stockholders 
not  citizens  of  Nebraska  sued  in  the  United  States  Cir- 
cuit Court  for  an  injunction  prohibiting  the  enforcement 
of  the  rates  fixed  by  the  State  law,  and  such  an  injunc- 
tion was  granted.  It  was  claimed  by  the  attorneys  for 
the  State  of  Nebraska  that  the  Federal  Court  had  no 
equity  jurisdiction  in  the  suit,  because  the  statute  had 
given  the  railroad  companies  an  adequate  remedy  at  law 
by  granting  them  the  right  to  appeal  to  the  Supreme 
Court  of  the  State  for  an  order  on  the  Board  of  Trans- 
portation to  correct  any  unreasonable  rate.  The  Federal 
courts,  however,  did  not  accept  that  view,  and  the  Su- 
preme Court  held  that 

one  who  is  entitled  to  sue  in  the  Federal  Circuit  Court  may 
invoke  its  jurisdiction  in  equity  whenever  the  established  prin- 
ciples and  rules  of  equity  permit  such  a  suit  in  that  court ;  and 
he  cannot  be  deprived  of  that  right  by  reason  of  his  being 
allowed  to  sue  at  law  in  a  State  court  on  the  same  cause  of 
action.     (Smyth  v.  Ames,  169  U.  S.  466.) 

The  Supreme  Court,  moreover,  affirmed  the  decision  of 
the  Circuit  Court,  and  set  aside  the  rates  established  by 
the  Nebraska  statute  of  1893,  because  the  court  believed 
they  were  unconstitutional. 

By  this  decision  the  Supreme  Court  fully  established  the 
right  of  the  Federal  judiciary  to  invalidate  rates  pre- 
scribed by  law.  This  right  was  reaffirmed  and  strengthened 
in  the  ex  parte  Young  case  of  1908  (209  U.  S.  123),  when 
the  Supreme  Court  sustained  an  injunction  issued  by  the 


COURTS  AND  RAILROAD  REGULATION    541 

Circuit  Court  for  the  District  of  Minnesota  to  prevent 
the  Attorney  General  of  the  State  of  Minnesota  from  en- 
forcing a  rate  law  of  that  State.  The  Supreme  Court 
again  declared  that  the  reasonableness  of  a  State-made 
rate  was  a  Federal  question  which  could  be  taken  directly 
to  the  Federal  courts  for  adjudication.  On  many  occasions 
in  recent  years  the  Federal  courts  have  heard  cases  in- 
volving the  validity  of  rates  established  by  law,  and  in  so 
doing  they  have  assumed  an  important  position  in  the 
regulation  of  railway  rates  by  the  Government. 

With  regard  to  passing  upon  the  reasonableness  of  rates 
established  by  the  railway  companies,  the  courts  have  now 
but  little  to  do,  inasmuch  as  questions  involving  the  rea- 
sonableness of  railroad  charges  are  now  brought  before 
State  commissions  and  the  Interstate  Commerce  Commis- 
sion. Formerly  when  carriers  charged  unreasonably  high 
or  extortionate  rates  a  shipper  had  the  right,  under  the 
common  law,  to  sue  in  the  courts  for  damages,  and  if  such 
an  action  was  brought  it  was  necessary  for  the  court  hear- 
ing the  suit  to  determine  the  question  of  the  reasonableness 
of  the  rate  charged.  Theoretically,  this  privilege  gave  each 
individual  protection  against  losses  from  excessive  or  un- 
just charges  for  railroad  transportation,  but  in  practice  this 
protection  was  inadequate,  because  most  persons  preferred 
to  bear  an  injustice  rather  than  to  assume  the  trouble, 
expense,  and  business  risks  that  a  lawsuit  would  involve. 
Furthermore,  the  business  losses  resulting  from  an  un- 
reasonable rate  are  seldom  covered  by  the  excessive  amount 
of  the  charge ;  the  chief  losses  are  those  caused  by  the  in- 
jury done  to  the  complainant's  business.  A  discriminating 
or  unreasonably  high  rate  may  seriously  cripple  or  ruin  a 
shipper  by  diverting  his  business  to  a  more  fortunate  com- 
petitor whose  railroad  charges  are  lower.  One  reason  for 
the  establishment  of  the  State  railroad  commissions  and 
the    Interstate   Commerce    Commission    was   to    provide    a 


542  RAILROAD  TRANSPORTATION 

public  agency  whereby  the  aggrieved  shipper  or  passenger 
might  secure  legal  redress  without  undue  expense  or  trouble. 

Though  the  Interstate  Commerce  Act  provides  that  "any 
person  or  persons  claiming  to  be  damaged  by  any  common 
carrier  subject  to  the  provisions  of  this  Act  may  either 
make  complaint  to  the  Commission  ...  or  may  bring 
suit  .  .  .  for  the  recovery  of  damages  ...  in  any  district  or 
circuit  court  of  the  United  States  of  competent  jurisdiction," 
the  Supreme  Court  has  wisely  held  that  action  for  damages 
in  a  court,  to  recover  losses  due  to  an  alleged  unreason- 
able rate,  will  not  be  sustained  until  the  commission  has 
passed  upon  the  question  of  the  reasonableness  of  the 
rate  complained  of  (Texas  and  P.  Rlzvy.  Co.  v.  Abilene  Cot- 
ton Oil  Co.,  204  U.  S.  426).  Were  not  this  the  practice  of 
the  courts  a  situation  might  easily  arise  in  which  the  same 
rate  would  be  held  reasonable  by  the  judiciary  and  un- 
reasonable by  the  commission.  As  the  Supreme  Court  said 
in  another  decision  (B.  and  O.  R.  R.  Co.  v.  Pitcairn  Coal 
Co.,  215  U.  S.  481),  "any  other  view  would  give  rise  to  in- 
extricable confusion,  would  create  unjust  preferences  and 
undue  discriminations,  would  frustrate  the  purposes  of  the 
act  [to  regulate  commerce],  and,  in  effect,  cause  the  act  to 
destroy  itself." 

The  Supreme  Court  has  also  held  that  mere  negative 
orders  of  the  commission  are  not  subject  to  court  review. 
That  is,  if  a  shipper  complains  that  a  rate  is  unreasonable 
and  the  commission,  after  full  hearing,  decides  upon  the 
evidence  presented  that  the  rate  is  reasonable,  and  dis- 
misses the  complaint,  the  shipper  has  no  right  of  appeal  to 
the  courts  for  a  reversal  of  the  commission's  finding.  If 
the  courts  should  sustain  an  appeal  under  such  circum- 
stances, they  would  be  exercising  the  administrative  func- 
tions which  belong  only  to  the  commission  (Procter  & 
Gamble  Co.  v.  United  States,  22$  U.  S.  282;  Hooker  v. 
Knapp,  225  U.  S.  302). 


COURTS  AND  RAILROAD  REGULATION    543 

While  the  Federal  courts  under  the  Interstate  Com- 
merce law  do  not  determine  the  reasonableness  of  rates 
established  by  the  railroads,  they  nevertheless  have  exercised 
not  a  little  control  over  the  rate  making  practices  of  the 
carriers.  For  example,  the  courts  have  at  times  prevented 
the  railroads  from  advancing-  rates.  An  instance  of  this 
occurred  in  November  1898,  when  the  United  States  Cir- 
cuit Court  at  Denver,  Col.,  issued  a  temporary  injunction 
restraining  the  Southern  Pacific  and  other  railroads  from 
putting  into  effect  a  proposed  advance  of  33  per  cent  in  the 
rates  on  iron  and  steel  from  Colorado  points  to  the  Pacific 
coast.  The  application  for  this  injunction  was  made  by 
the  Colorado  Fuel  and  Iron  Company,  whose  products  were 
in  part  marketed  on  the  Pacific  coast.  The  reasoning  of 
the  court  in  this  case  states  very  clearly  the  inadequacy 
of  legal  processes  for  the  recovery  of  damages  resulting 
from  unreasonable  rates.  Among  other  things  the  court 
said: 

If  the  rate  shall  be  raised  as  proposed  and  complainant  shall 
be  excluded  from  the  market,  as  stated  in  the  bill  will  be 
the  case,  in  case  this  notice  is  carried  out,  no  compensation 
which  can  be  obtained  in  damages  would  be  adequate.  It 
would  be  impracticable  to  show  in  an  action  at  law  what  the 
losses  resulting  from  such  a  procedure  might  be,  and  so  it 
would  seem  that  equity  can  afford  the  only  adequate  relief 
under   such   circumstances. 

The  provision  of  the  Mann-Elkins  Act  of  1910  giving 
the  Interstate  Commerce  Commission  the  power  to  suspend 
proposed  changes  in  rates,  pending  an  investigation  into 
their  reasonableness,  was  framed  to  protect  shippers  from 
the  danger  of  losses  which  would  be  incurred  from  increased 
rates  which  could  be  legally  charged  until  declared  unreason- 
able by  competent  authority.  Just  previous  to  the  enact- 
ment of  this  law  there  had  been  a  concerted  movement 
among  the  eastern  and  western  trunk  line  railroads  to  put 


544  RAILROAD  TRANSPORTATION 

into  effect  a  general  increase  of  rates.  A  temporary  in- 
junction was  issued  against  the  western  carriers,  preventing 
the  increase  on  the  grounds  that  the  simultaneous  action 
of  the  railroads  was  a  violation  of  the  Sherman  Antitrust 
law.  Before  the  date  set  for  the  final  hearing  of  the  case 
the  railroad  companies  withdrew  the  proposed  schedules 
and  legal  proceedings  were  discontinued.  The  carriers 
probably  feared  that  their  traffic  associations,  through 
which  their  informal  rate  agreements  are  arranged,  would 
have  to  be  abandoned  and  the  way  thus  prepared  for 
entirely  unrestricted  competition.  By  withdrawing  the  pro- 
posed rates  and  permitting  the  discontinuance  of  the  in- 
junction suits,  the  traffic  associations  were  saved ;  the  Mann- 
Elkins  Act  gave  the  shippers  more  and  better .  protection 
against  increases  in  rates  than  could  be  secured  in  ordinary 
court  proceedings. 

The  courts  have  used  their  powers  of  injunction  not 
only  to  prevent  the  railroads  from  charging  excessive  rates, 
but  also  to  enjoin  them  from  cutting  rates.  In  preventing  ■ 
advances  the  courts  have  acted  in  the  interests  of  shippers ; 
in  stopping  rate  reductions  action  was  taken  for  the  relief 
of  the  owners  of  the  railway  securities  and  of  the  ship- 
pers whose  business  might  suffer.  There  is  at  least  one 
instance  of  a  rate  war  having  been  checked  by  injunc- 
tions of  the  courts.  In  July  1896  a  controversy  arose 
between  the  Seaboard  Air  Line  and  the  Southern  Rail- 
way Company,  two  corporations  controlling  a  large  part 
of  the  traffic  of  the  southeastern  section  of  the  United 
States.  The  Seaboard  Air  Line  began  the  rate  cutting 
by  taking  one-third  off  its  rates  on  traffic  to  those  points 
south  of  Baltimore  where  it  had  to  meet  the  competition 
of  its  rival.  The  Southern  Railway  Company  "met  this 
cut,  whereupon  the  Seaboard  extended  the  cut  to  its  traffic 
from  Boston,  Providence,  New  York,  and  Philadelphia 
to  southern  cities,  and  announced  that  if  the  Southern  Rail- 


COURTS  AND  RAILROAD  REGULATION    545  ' 

way  should  meet  the  cut  a  further  reduction  would  be 
made  in  the  Seaboard's  charges.  The  reply  of  the  Southern 
Railway  to  this  challenge  was  the  announcement  of  a  cut 
of  80  per  cent,  to  go  into  effect  10  days  later,  August  1, 
1898. 

At  this  stage  of  the  war  the  United  States  District 
Court  of  North  Carolina,  Judge  Simonton,  was  asked  to 
enjoin  the  contending  roads  from  carrying  out  the  rate 
reductions  that  had  been  announced.  The  prayer  for  this 
injunction  was  made  by  the  receiver  of  the  Port  Royal 
and  Augusta  Railway,  an  insolvent  company  forming  one 
of  the  connections  of  the  Seaboard  Air  Line.  The  prayer 
was  based  on  the  plea  that  the  threatened  rate  war  would 
result  in  "the  certain  destruction  of  the  railroad  property 
in  the  hands  of  the  receiver."  The  court  appealed  to 
granted  a  temporary  injunction  until  the  15th  of  August,  but 
on  that  date  the  injunction  was  not  made  permanent,  be- 
cause some  of  the  companies  affected  by  the  injunction 
were  outside  of  the  jurisdiction  of  the  District  Court  of 
North  Carolina. 

With  the  removal  of  Judge  Simonton's  injunction  the 
rate  war  broke  out  afresh,  but  the  Federal  courts  were  again 
successfully  appealed  to.  This  time  an  association  of 
merchants,  the  Wholesale  Grocers'  Association  of  Augusta, 
appealed  to  Judge  Speer  of  the  United  States  District  Court 
of  Southern  Georgia,  sitting  in  Augusta,  for  an  injunc- 
tion against  the  railroads,  on  the  ground  that  the  low  rates 
to  Atlanta  constituted  an  unjust  discrimination  against 
Augusta,  Macon,  and  other  cities,  and  violated  section  three 
of  the  Interstate  Commerce  law.  Section  twenty-two  of  the 
act  passed  in  1887  gives  the  district  and  circuit  courts  power 
to  issue  such  an  injunction  as  was  asked  for  by  the  Augusta 
merchants,  and  on  September  10  Judge  Speer  granted  a 
temporary  injunction,  enjoining  the  railroad  companies  to 
restore  the  rate  that  had  been  in  force  September  5.     The 


546  RAILROAD  TRANSPORTATION 

date  for  the  hearing  was  fixed  for  the  24th.  The  Southern 
Railway  Company  restored  its  rates  according  to  the  order 
of  the  court,  and  the  Seaboard  did  the  same  with  its  charges 
to  some  places.  The  Seaboard,  however,  had  no  line  enter- 
ing Atlanta,  and  there  was  some  doubt  as  to  the  extent 
of  the  jurisdiction  of  the  court  that  had  issued  the  injunc- 
tion ;  consequently,  it  did  not  restore  its  rates  to  all  points. 
This  difficulty  as  regards  jurisdiction  was  settled  by  the 
issue  of  an  injunction  by  Judge  Hughes  of  the  United 
States  Circuit  Court  for  the  Eastern  District  of  Virginia, 
sitting  at  Richmond. 

This  injunction  of  the  Circuit  Court  is  the  most  sig- 
nificant of  the  three  that  have  been  mentioned,  because 
it  was  issued  to  protect  the  owners  of  railway  bonds.  The 
complainants  were  the  Baltimore  Trust  and  Guarantee  Com- 
pany and  other  financial  institutions  holding  railroad  bonds, 
who  sued  for  an  injunction  on  the  ground  that  the  rate 
war  was  destroying  their  property,  and  that  they  had  no 
means  of  preventing  that  destruction  by  an  action  at  law. 

Before  the  1st  of  October  all  rates  were  restored  and 
the  war  was  brought  to  an  end.  The  courts  did  actually 
terminate  a  rate  war,  and  did  so  by  enjoining  the  rail- 
roads against  charging  rates  that  were  unjustly  low.  One 
injunction  was  issued  to  prohibit  illegal  discrimination; 
the  other  two  were  to  prevent  the  destruction  of  property. 
Inasmuch  as  the  questions  at  issue  in  these  cases  did  not 
reach  the  Supreme  Court  for  adjudication,  it  was  not  finally 
settled  that  the  Federal  courts  actually  possess  the  power 
to  declare  rates  unreasonably  low  as  well  as  unreason- 
ably high,  but  that  the  courts  do  have  this  power  is  rendered 
very  probable  by  the  issue  of  the  above  injunctions  by  three 
different  Federal  courts. 

When  the  Mann-Elkins  Act  was  passed  it  was  suggested 
that  the  railroads  be  given  the  same  protection  against  the 
unreasonable  cutting  of  rates  by  rival  lines  as  was  given  the 


COURTS  AND  RAILROAD  REGULATION    547 

shippers  against  unreasonable  increases  by  the  railroads. 
It  was  not  until  the  Transportation  Act  of  1920  was 
passed  that  adequate  provision  was  made  to  protect  rail- 
ways from  the  effects  of  rate  wars.  This  was  accom- 
plished by  giving  to  the  Interstate  Commerce  Commis- 
sion authority  to  establish  minimum  as  well  as  maximum 
charges. 

Another  use  of  the  equity  power  of  the  courts  to  con- 
trol railway  charges  has  been  to  enjoin  railroad  companies 
from  secretly  cutting  rates.  It  was  found  by  the  Interstate 
Commerce  Commission  at  the  close  of  1901  that  the  rates 
on  grain,  grain  products,  and  packing-house  products  were 
being  secretly  cut,  and  that  the  published  rates  were  not 
being  observed.  The  giving  of  secret  rates  was  a  criminal 
offense,  and  the  United  States  Department  of  Justice  was 
informed  by  the  commission  that  the  Interstate  Commerce 
law  was  being  violated,  but  in  this  case,  as  in  former  in- 
stances, the  Government  was  unable  to  enforce  the  criminal 
provisions  of  that  law,  because  the  persons  who  had  knowl- 
edge of  secret  cuttings  of  rates  were  loath  to  give  to  the 
State  evidence  that  might  cause  those  who  gave  the  special 
rates  (often  their  own  business  acquaintances)  to  be  sent 
to  prison.  Realizing  that  the  reliance  upon  criminal  prose- 
cutions for  the  prevention  of  rate  discriminations  would 
not  secure  the  observance  of  the  law,  the  Interstate  Com- 
merce Commission  applied  to  the  Federal  Circuit  Court  at 
Kansas  City  and  Chicago  in  March  1902,  to  enjoin  the 
leading  railway  companies  of  the  central  West  to  observe 
their  published  schedules  of  rates.  Temporary  injunctions 
were  granted  as  requested ;  indeed,  most  of  the  railroad 
companies  concerned  were  said  to  have  welcomed  the  in- 
junctions, because  the  restraining  orders  of  the  courts  would 
enable  the  companies  to  enforce  their  published  rates.  Rail- 
roads do  not  usually  cut  rates  because  they  wish  to,  but 
because  they  think  they  must  in  order  to  secure  or  hold 


548  RAILROAD  TRANSPORTATION 

traffic.  Arguments  as  to  making  the  temporary  injunc- 
tions permanent  were  not  heard  in  Chicago  until  December 
1902.  The  injunctions  were  allowed  to  stand,  and  the  Elkins 
law  of  February  17,  1903,  gave  the  courts  definite  power 
to  issue  such  writs  of  injunction. 

Injunctions  in  Labor  Disputes 
In  connection  with  the  disputes  between  labor  and  cap- 
ital, the  equity  powers  of  the  courts  have  frequently  been 
employed  to  protect  the  interests  of  one  or  the  other  of 
the  contending  parties  or  of  the  general  public.  By  their 
intervention  in  railway  labor  controversies  the  Federal 
courts  have  exercised  a  regulative  authority  of  consider- 
able importance  over  the  railroad  service. 

As  the  law  in  regard  to  striking  has  been  interpreted 
by  the  American  courts,  railroad  employees  and  other 
workmen  have  a  right  either  singly  or  in  a  body  to  quit 
their  employment  at  any  time,  provided  they  do  not  vio- 
late a  contract  in  doing  so,  and  provided  they  quit  peace- 
ably, without  violence,  and  without  concerted  actions  in- 
tended to  injure  their  employer  or  his  business.  It  is 
permissible  for  laborers  to  refrain  from  working,  and  to 
advise  and  encourage  others,  by  peaceable  argument  and 
persuasion,  to  quit  their  employment.  A  strike  may  be 
legal,  but  in  many,  if  not  most  cases,  the  strikers  are 
led  to  resort  to  illegal  acts,  because  the  success  of  the 
strike  depends  upon  their  preventing  their  employer  from 
securing  other  men  to  fill  the  places  of  the  strikers.  To 
accomplish  this,  intimidation  and  violence  are  frequently 
necessary. 

In  the  case  of  railroad  employees  several  exceptions 
have  been  made  by  State  and  Federal  statutes  to  this  gen- 
eral law  of  strikes.  In  order  to  prevent  the  loss  of  life  and 
the  destruction  of  property,  laws  have  been  passed  making 
!t   a   penal   offense   for   a   locomotive   engineer,   conductor, 


COURTS  AND  RAILROAD  REGULATION    54-9 

brakeman,  baggage-master,  or  other  railroad  employee  to 
abandon  his  engine,  car,  or  train  when  it  is  en  route  to  its 
regular  destination,  or  to  injure  or  disable  any  engine 
or  car  so  that  it  will  not  be  fit  for  immediate  use.  The 
courts  have  also  held  it  to  be  unlawful  for  an  engineer  on 
one  road  to  aid  a  strike  against  some  other  road  by  refusing 
to  haul  the  cars  of  such  connecting  company. 

In  numerous  instances  railroad  companies  and  other 
employers  have  appealed  successfully  to  the  courts  for  the 
issue  of  mandatory  writs  enjoining  strikers  from  destroy- 
ing the  property  of  the  companies,  from  intimidating  men 
to  prevent  their  taking  the  places  vacated  by  the  strikers, 
and  from  doing  such  other  acts  as  will  render  it  impos- 
sible for  the  railroad  company  to  perform  its  services 
to  the  public.  In  the  past  the  courts  have  often  made 
these  injunctions  very  comprehensive,  and  have  prevented 
persons  not  only  from  destroying  property  and  using 
threats,  intimidation,  or  force  to  induce  men  to  quit  the 
service  of  a  railroad  or  not  to  engage  in  its  employment, 
but  also  "from  in  any  manner  interfering  with"  the  move- 
ment of  the  trains.  Moreover,  and,  what  is  more  impor- 
tant, these  injunctions,  instead  of  being  directed  against 
only  those  persons  named  in  the  bills,  have  included  "all 
persons  combining  and  conspiring  with  them,  and  all  other 
persons  ivhomsoever."  Because  of  their  wide  scope,  these 
writs  have  been  popularly  called  blanket  injunctions,  and 
their  purpose  and  effect  have  been  to  substitute  for  the 
punishments  provided  by  the  statutes  against  crimes  the 
surer  and  speedier  remedy  of  the  mandatory  processes  of 
the  courts  sitting  in  the  exercise  of  their  equity  powers. 

The  courts  may  in  some  instances  order  railway  em- 
ployees— while  they  remain  in  the  service  of  their  em- 
ployer— to  perform  their  regular  services.  Such  an  order 
was  issued  in  1893  by  a  Federal  court  in  connection  with 
a  strike  on  the  Toledo,  Ann  Arbor  and  Northern  Michi- 


550  RAILROAD  TRANSPORTATION 

gan  Railroad.  This  railroad  connects  with  the  Lake  Shore 
road  at  Toledo,  and  the  engineers  on  the  Lake  Shore  were 
ordered  by  their  brotherhood  not  to  haul  the  cars  received 
from  the  Ann  Arbor  line.  The  Ann  Arbor  company,  acting 
in  accordance  with  the  provisions  of  sections  ten  and  twenty- 
two  of  the  Interstate  Commerce  law,  appealed  to  the  courts 
for  a  mandamus  to  compel  the  Lake  Shore  to  receive  and 
haul  the  freight  offered.  The  court  granted  the  writ,  and 
enjoined  both  the  officers  and  employees  of  the  roads  con- 
necting with  the  Ann  Arbor  to  receive  and  forward  its 
freight  The  court  admitted  the  right  of  the  engineers  to 
leave  the  employment  of  the  roads  connecting  with  the 
Ann  Arbor,  but  held  that  while  the  engineers  continued  in 
their  employment  they  must  handle  the  freight  received 
from  the  Ann  Arbor  company.  This  ruling  of  the  lower 
court  was  upheld  by  the  Supreme  Court.  In  refusing  to 
haul  the  freight  received  from  the  Ann  Arbor  company  the 
engineers  of  the  Lake  Shore  and  other  roads  were  obeying 
a  by-law  of  the  Brotherhood  of  Locomotive  Engineers  re- 
quiring its  members  to  refuse  to  handle  the  traffic  from 
roads  where  an  authorized  strike  was  in  progress.  The 
Federal  courts  held  this  rule  to  be  a  violation  of  the  anti- 
trust law  of  July  2,  1890,  and  the  brotherhood  was  ordered 
to  abandon  the  rule,  which  was  done. 

In  1894  an  order  was  made  by  Judge  Jenkins  of  the 
United  States  Circuit  Court,  sitting  in  Milwaukee,  en- 
joining the  employees  of  the  Northern  Pacific  (which  road 
was  then  insolvent  and  was  being  managed  by  receivers 
appointed  by  Judge  Jenkins)  "from  combining  and  con- 
spiring to  quit,  with  or  without  notice,  the  service  of  said 
receivers."  The  purpose  of  the  order  was  to  prevent  a 
threatened  strike.  This  order  was,  however,  overruled  by 
the  Circuit  Court  of  Appeals,  as  was  also  an  injunction, 
issued  the  same  year,  enjoining  the  employees  of  the  Union 
Pacific  Railway  (then  insolvent  and  in  charge  of  receivers) 


COURTS  AND  RAILROAD  REGULATION    551 

from  striking  when  the  receivers  should  put  into  force 
an  announced  reduction  of  wages.  There  was  much  popu- 
lar opposition  to  these  injunctions,  and  it  is  doubtless  fortu- 
nate for  the  public  that  the  lower  court  was  not  upheld 
in  its  endeavors  to  prevent  men  from  striking  or  to  compel 
them  to  work. 

A  conspiracy  in  restraint  of  trade  or  commerce  among  the 
several  States  is  made  illegal  by  the  antitrust  law  of  1890, 
and  the  obstruction  of  the  mails  is  forbidden  by  Section 
3995  of  the  United  States  Revised  Statutes.  The  enforce- 
ment of  these  and  similar  laws  is  ordinarily  accomplished 
by  indicting  and  punishing  those  persons  who  may  break 
the  laws;  but  in  extraordinary  times,  when  a  disregard 
of  law  is  causing  or  threatening  to  cause  loss  of  life,  de- 
struction of  property,  or  serious  public  inconvenience,  the 
courts  may  temporarily  exercise  their  mandatory  power 
of  injunction  to  preserve  order  and  insure  the  observance 
of  the  laws.  This  power  was  exercised  by  the  Federal 
courts  in  a  forcible  and  effective  manner  during  the  strike 
inaugurated  at  Chicago  by  the  American  Railway  Union 
\n  July  1894,  the  so-called  "Debs  Strike." 

On  the  nth  of  May  1894  the  employees  of  the  Pull- 
man Palace  Car  Company,  at  the  town  of  Pullman,  near 
Chicago,  went  on  a  strike.  These  Pullman  employees  were 
members  of  a  large  organization  of  railway  men,  the  Ameri- 
can Railway  Union,  whose  president  was  Eugene  V.  Debs. 
On  the  26th  of  June  the  Railway  Union  inaugurated  a 
boycott  against  the  Pullman  Company  by  voting  that  no 
member  of  the  union  should  handle  Pullman  cars.  The 
purpose  of  this  "sympathetic  strike"  was  to  tie  up  the 
railway  business  of  the  country,  and  thus  to  force  the 
Pullman  Company  either  to  grant  the  demands  of  its 
striking  employees  or  to  agree  to  an  arbitration  of  the 
grievances.  The  boycott  had  the  effect  of  stopping  the 
movement  of  passenger  trains,  and  consequently  the  mails 


552 


RAILROAD  TRANSPORTATION 


into  and  out  of  Chicago,  and  at  other  places  in  the  United 
States.  At  Chicago,  violence,  disorder,  the  destruction 
of  property,  and  the  loss  of  life  followed  soon  after  the 
strike  began,  and  on  July  2  the  United  States  Circuit 
Court,  Chief  Justice  Fuller  presiding,  issued  an  order  en- 
joining Debs  and  the  other  officers  of  the  American  Rail- 
way Union,  "and  all  other  persons  combining  and  con- 
spiring with  them,"  and  "all  other  persons  whomsoever," 
from  in  any  way  interfering  with  the  movement  of  trains 
or  the  transportation  of  the  mails  over  the  23  railroads 
entering  Chicago.  This  injunction  was  disregarded,  and  in 
accordance  with  President  Cleveland's  orders  nearly  2,000 
of  the  United  States  regular  troops  were  sent  into  Chicago 
between  the  3d  and  10th  of  July  to  assist  the  courts  in  en- 
forcing their  orders.  The  United  States  Marshal  also  em- 
ployed about  5,000  deputy  marshals.  There  were  in  addition 
to  these  the  police  force  of  the  city  of  Chicago  and  the 
4,000  Illinois  State  militia  ordered  on  duty  between  Jul) 
6  and  11.  President  Cleveland  ordered  the  Federal  troops 
to  Chicago  without  being  requested  to  do  so  by  the  Governor 
of  Illinois,  the  troops  being  sent  "to  protect  Federal  prop- 
erty, to  prevent  obstruction  in  the  carrying  of  the  mails, 
to  prevent  interference  with  the  interstate  commerce,  and 
to  enforce  the  decrees  and  mandates  of  the  Federal  courts." 
The  strike  was  broken  by  the  exercise  of  military  force 
and  by  the  arrest  and  imprisonment  of  the  leaders  of  the 
strikers,  particularly  the  officers  of  the  American  Railway 
Union.  These  officers  were  attached  and  imprisoned  on 
the  13th  of  July  for  contempt  of  court  in  disobeying  the  in- 
junction issued  July  2.  This  action  of  the  Federal  Circuit 
Court  was  sustained  by  the  Supreme  Court,  to  which  appeal 
was  made  by  Mr.  Debs  and  the  other  officers  of  the  Ameri- 
can Railway  Union. 

The  courts  made  such  large  use  of  their  power  of  in- 
junction to  intervene  in  labor  controversies  of  all  kinds  that 


COURTS  AND  RAILROAD  REGULATION    55C 

popular  indignation  was  often  aroused.  Labor  organizations 
long  demanded  legislation  which  would  limit  somewhat  the 
activities  of  the  courts,  and  due  to  their  demand,  and  also 
to  the  insistence  of  many  other  organizations  and  individ- 
uals who  felt  that  the  courts  had  often  gone  too  far  in  the 
exercise  of  their  power  of  injunction,  Congress  included  in 
the  Clayton  Antitrust  Act  of  1914  certain  provisions  for  the 
regulation  of  the  use  of  injunctions  in  labor  troubles.  The 
chief  rules  of  the  law  governing  the  use  of  such  injunctions 
are : 

1.  No  preliminary  injunction  may  be  issued  without  notice 
to  both  parties. 

2.  No  temporary  restraining  order  may  be  granted  with- 
out such  notice  unless  it  appears  that  an  immediate  and 
irreparable  injury  will  result  to  the  applicant  before  a 
hearing  can  be  held.  Such  temporary  orders  expire  in 
ten  days,  but  may  be  renewed  for  good  cause.  Any  party 
served  with  a  restraining  order  issued  without  notice  may, 
upon  two  days'  notice  to  the  applicant,  appear  before  the 
court  and  ask  for  the  dissolution  of  the  order,  and  a  hear- 
ing must  then  be  had. 

3.  Every  restraining  order  or  injunction  must  set  forth 
fully  the  reasons  for  its  issuance  and  indicate  with  reason- 
able definiteness  the  acts  restrained. 

4.  No  injunction  or  restraining  order  shall  be  issued  in 
labor  controversies  unless  necessary  to  prevent  irreparable 
injury  to  the  property  of  the  applicant,  for  which  injury 
there  is  no  adequate  remedy  at  law. 

5.  No  injunction  shall  prohibit  a  strike,  peaceful  picket- 
ing, advising  others  to  strike  or  boycott,  assembling  for 
peaceful  purposes,  or  payment  of  strike  benefits. 

6.  Disobedience  of  a  restraining  order  or  an  injunction, 
if  the  act  also  is  a  criminal  offense  against  Federal  laws, 
shall  be  punished  as  contempt  of  court  only  after  a  jury 
trial  if  the  defense  demands  it,  except  that  contempt  com- 


554  RAILROAD  TRANSPORTATION 

mitted  in  the  presence  of  the  court  or  disobedience  of  an 
order  or  injunction  in  a  suit  brought  by  the  United  States 
may  be  punished  without  a  jury  trial. 

7.  No  action  can  be  brought  against  a  person  for  contempt 
unless  begun  within  a  year  from  the  time  of  the  act  com- 
plained of. 

This  law  gives  to  strikers  and  others  engaged  in  labor 
disputes  ample  protection  against  overhasty  action  by  the 
courts,  but  at  the  same  time  it  permits  the  courts  to  make 
use  of  their  powers  of  injunction  when  necessary.  The 
injunction,  properly  used,  is  an  extremely  powerful  weapon 
for  social  defense ;  only  its  misuse  has  caused  it  to  be  looked 
upon  as  an  instrument  of  oppression.  There  are  many  cases 
of  emergency  in  which  it  is  the  only  means  available  of  pre- 
venting acts  of  violence  and  disorder,  which,  if  not  antici- 
pated, would  occasion  loss  of  property  and  life,  which  no 
action  at  law  could  replace. 

Railway  Receiverships 

When  a  railroad  company  becomes  insolvent — when  it 
cannot  pay  the  interest  on  its  debt  or  meet  its  other 
financial  obligations — the  creditors  of  the  road  may  ask 
a  court  to  take  possession  of  the  property.  If  the  court 
grants  the  request  of  the  creditors,  the  property  is  taken 
from  the  management  of  the  directors  and  officers  of  the 
company  and  put  in  charge  of  an  officer  of  the  court  called 
the  receiver.  If  the  company  is  not  hopelessly  insolvent 
the  road  will  be  operated  by  the  receiver,  who  will  cooperate 
with  the  creditors  and  the  owners  of  the  road  in  reor- 
ganizing the  company  and  placing  it  on  a  solvent  financial 
basis.  If,  however,  the  liabilities  of  the  company  are  found 
to  be  so  great  as  to  make  impossible  a  return  to  solvency 
by  means  of  reorganization,  the  court  will  instruct  the  re- 
ceiver to  sell  the  property  for  the  benefit  of  the  creditors; 
but  whether  the  property  is  sold  or  not  every  effort  will  be 


COURTS  AND  RAILROAD  REGULATION    555 

made  to  keep  the  railroad  in  operation,  because  the  value  of 
the  property  invested  in  a  railroad  depends  almost  entirely 
upon  what  it  can  earn  as  a  railroad.  It  cannot  be  used 
for  other  purposes. 

The  foreclosure  suit  which  the  creditors  institute  against 
an  insolvent  railroad  is  seldom  instituted  to  compel  a 
sale  of  the  property;  indeed,  the  owners  of  the  junior 
liens  and  the  stock  of  the  company  are  usually  willing 
to  make  considerable  present  sacrifice  to  prevent  the  dis- 
ruption of  the  property,  because  a  reorganization  of  the 
company  makes  it  possible  for  the  subordinate  liens  and 
the  stock  to  become  valuable  in  the  future.  In  order  to 
secure  the  funds  temporarily  required  to  operate  the  road 
and  to  rehabilitate  the  property,  the  receiver  borrows  money 
by  the  sale  of  certificates  which  constitute  a  first  claim 
on  the  property,  outranking  even  the  first-mortgage  bonds. 
While  the  receiver  is  improving  the  property  with  the 
capital  thus  obtained,  and  is  increasing  the  earning  capacity 
of  the  road,  committees  representing  the  financial  interests 
concerned  are  at  work  on  a  plan  of  reorganization.  This 
plan  usually  involves  an  assessment  on  the  stock,  and  some- 
times on  the  holders  of  the  junior  mortgages,  and  frequently 
requires  the  exchange  of  some  of  the  bonds  for  stock  and 
the  displacement  of  some  of  the  old  bonds  with  a  new 
issue  bearing  a  lower  rate  of  interest.  The  purpose  of  the 
changes  is  to  reduce  the  capital  charges  so  that  the  earnings 
of  the  road  will  be  able  to  meet  the  fixed  charges.  When 
the  court  having  control  of  the  insolvent  road  is  satisfied 
that  a  plan  of  reorganization  has  been  worked  out  that 
will  insure  the  solvency  of  the  company,  it  accepts  the 
plan  and  restores  the  property  to  the  management  of  the 
stockholders.  If  the  receivership  has  been  successfully 
managed,  the  court  has  not  only  avoided  selling  the  property 
under  the  hammer,  but  has  put  the  road  in  a  better  condition 
for  handling  traffic.     The  total  capitalization  of  the  com 


r>><;  RAILROAD  TRANSPORTATION 

pany  may  have  been  reduced,  but  that  does  not  always 
occur;  it  has  sometimes  been  found  possible  to  reduce  the 
interest  and  other  fixed  charges  while  actually  increasing 
not  only  the  stocks  but  the  indebtedness  of  the  company. 

Usually  in  prosperous  times  most  railroad  companies  are 
solvent,  and  the  courts  have  charge  of  but  a  short  mileage; 
but  in  times  of  severe  business  depression  the  courts  have 
operated  a  surprisingly  large  part  of  the  railway  systems  of 
the  country.  The  business  panics  of  1873,  1885  and  1893 
were  notable  for  the  number  of  railway  receiverships  oc- 
curring, and  the  years  of  business  stagnation,  beginning  in 
1912,  were  marked  by  a  recurrence  of  railway  insolvency. 
During  the  18  months  ending  July  I,  1894,  43,000  miles 
of  railroads — 24  per  cent  of  the  total  mileage  of  the  coun- 
try— were  taken  in  charge  by  the  courts.  In  some  instances 
the  duration  of  the  receivership  was  only  for  a  few  months, 
but  in  other  cases  the  roads  were  under  the  control  of  the 
courts  for  several  years.  From  November  1893  until  Novem- 
ber 1896,  the  number  of  miles  of  railroad  in  charge  of 
receivers  was  at  no  time  less  than  20,000  miles,  the  maximum 
number  of  miles  at  any  one  time  being  40,818.  It  was 
not  until  the  spring  of  1899  that  the  total  mileage  in  the 
hands  of  receivers  became  less  than  10,000.  After  that  year 
the  railroads  became  much  more  prosperous.  On  June  30, 
1906,  only  34  roads  in  the  United  States,  with  a  total 
mileage  of  3,971,  were  being  operated  by  receivers.  There 
was  an  increase  to  10,000  miles  during  the  depression  in 
1907-08,  but  the  prosperous  year  of  1910  witnessed  a  reduc- 
tion of  the  amount  to  less  than  6,000  miles,  and  by  June 
30,  191 1,  the  number  of  miles  operated  under  supervision 
of  the  courts  had  declined  to  4,593.  On  June  30,  1912,  the 
mileage  in  the  hands  of  receivers  was  9,786,  and  it  continued 
steadily  to  increase  until  in  the  summer  of  191 5  it  amounted 
to  approximately  42,000  miles,  or  nearly  15  per  cent  of 
the  mileage  of  the  entire  country.    On  January  1,  1916,  the 


COURTS  AND  RAILROAD  REGULATION    557 

number  of  miles  in  bankruptcy  was  38,661  ;  the  par  value 
of  the  stock  issued  by  the  companies  which  had  controlled 
these  lines  was  $747,004,801,  and  the  bonded  indebtedness 
$1,607,895,500. 

The  large  number  of  railroad  receiverships  in  the  United 
States  has  been  the  result  of  several  causes,  of  which 
the  first  and  most  potent  has  been  overcapitalization.  In 
many  instances  the  original  investment  for  the  construction 
and  equipment  of  the  railroad  represented  but  little  more 
than  the  amount  of  first-mortgage  bonds.  The  junior  liens 
were  frequently  sold  at  a  great  discount,  and  the  stocks 
were  distributed  as  a  bonus  to  the  purchasers  of  the  bonds. 
The  securities  other  than  the  first-mortgage  bonds  were  used 
as  the  inducement  by  which  men  were  influenced  to  invest 
in  the  enterprise.  The  value  of  the  stock  and,  to  a  large  ex- 
tent, of  the  junior  liens  depended  on  the  growth  of  the  traf- 
fic of  the  railroad.  Many  roads  were  highly  prosperous 
almost  from  the  start,  and  rapidly  gave  actual  value  to 
the  fictitious  capital.  Other  companies  were  not  so  fortu- 
nate. They  found  that  their  system  of  roads  had  been 
extended  more  rapidly  than  the  growth  of  the  country 
demanded,  or  that  the  completion  of  their  lines  was  fol- 
lowed by  a  business  depression  which  cut  down  their  an- 
ticipated traffic  and  increased  the  difficulty  of  financing 
their  enterprise,  or  they  found  that  some  other  company 
followed  them  closely  with  a  new  and  rival  line.  During 
the  years  from  1868  to  1873,  and  from  1880  to  1885, 
railways  were  constructed  with  great  rapidity,  particularly 
in  the  central  and  far  western  sections  of  the  country, 
and  the  tendency  toward  overcapitalization  and  specula- 
tion was  excessive.  Many  companies  found  they  had  over- 
estimated the  future  increase  in  their  traffic,  that  competition 
became  keener  and  rates  declined  faster  than  had  been 
expected.  The  result  was  insolvency  and  the  temporary 
management  of  the  roads  by  the  courts.     Some  railroads 


558  RAILROAD  TRANSPORTATION 

were  built  almost  entirely  for  speculative  purposes  by  per- 
sons whose  object  was  to  profit  from  the  construction  of 
the  road.  Such  speculators  built  the  line  entirely  with 
borrowed  capital,  made  large  sums  from  the  construction 
contracts,  and  then  permitted  the  insolvent  road  to  pass 
into  the  hands  of  the  security  holders. 

The  increase  in  the  number  of  railway  insolvencies  begin- 
ning in  19 12  was  not  due  so  much  to  overcapitalization  by 
railway  builders  as  to  other  causes.  One  reason  for  the 
unusually  large  mileage  in  the  hands  of  receivers  was  that 
at  least  two  extensive  systems — the  St.  Louis  and  San  Fran  • 
cisco,  and  the  Chicago,  Rock  Island  and  Pacific— comprising 
nearly  14,000  miles  of  line,  or  more  than  one-third  of  the 
mileage  in  the  charge  of  the  courts,  were  wrecked  by  thu; 
financial  mismanagement  of  their  officers  and  directors.' 
The  receiverships  which  overtook  several  other  lines,  amon^f 
which  were  the  Pere  Marquette  and  the  Wabash,  wen; 
likewise  due  in  a  large  measure  to  unwise  and  ill-considered 
financial  operation;  moreover,  it  was  a  noteworthy  fact 
that,  with  few  exceptions,  the  important  systems  in  the  con . 
trol  of  receivers  were  located  in  the  Southwest,  a  district 
long  notorious  for  the  speculative  character  of  the  manage- 
ment of  its  railways.  In  large  part,  however,  the  distresses 
of  the  railroads  following  1912  were  due  to  the  falling  off  in 
the  volume  of  traffic,  which  invariably  accompanies  a  busi- 
ness depression,  to  the  great  increase  in  operating  expenses 
occasioned  chiefly  by  increases  in  wages  and  taxes  and 
higher  costs  of  materials  and  supplies,  and  to  the  inability  of 
the  railroads  to  raise  their  rates  until  they  had  secured  the 
permission  of  governmental  authorities  in  whose  control 
the  regulation  of  rates  was  vested. 

lJ.  C.  C.  Reports  XXIX,  139;  XXXVI,  43-  See  also  E.  R.  Dews- 
nup,  "Recent  Financial  Investigations  by  the  Interstate  Commerce 
Commission,"  in  Annals  of  the  American  Academy  of  Political  and 
Social  Science,  LXIII,  January  1916,  pp.  199-214. 


COURTS  AND  RAILROAD  REGULATION    559 

It  is  fortunate  for  the  country  that  railways  are  not  now 
so  frequently  projected  ahead  of  business  needs  and  that 
it  has  become  more  difficult  for  a  new  company  to  enter 
a  field  already  occupied.  There  is  also  noticeable  an  in- 
crease of  conservatism  in  railway  financiering  as  the  cor- 
porations become  older  and  larger.  The  opportunity  for 
the  irresponsible  speculator  has  been  greatly  narrowed, 
although,  unfortunately,  he  has  not  been  driven  entirely 
from  the  field.  The  tendency  toward  overcapitalization  is 
not  so  general  as  it  was  a  few  decades  ago,  though  it  seems 
still  to  be  practiced,  or  else  one  must  conclude  that  the  same 
results  that  follow  overcapitalization  have  been  obtained 
through  the  improper  manipulation  of  the  securities  of 
solvent  lines.  Railroads  need  the  confidence  of  the  public 
if  they  are  to  prosper.  Unfortunately,  the  public  does  not 
usually  discriminate  between  those  railroads  which  deserve 
its  confidence  and  those  which  do  not,  and  it  is  for  this 
reason,  more  than  for  any  other,  that  the  railways  as  a 
whole  have  not  been  accorded  as  generous  treatment  in 
recent  years  as  they  formerly  received.  When  the  specula- 
tor is  driven  from  the  railway  business  and  cases  of  gross 
mismanagement  become  less  frequent  and  less  conspicuous, 
railway  credit  will  be  greatly  strengthened  both  through  the 
increase  of  public  confidence  and  because  of  the  improved 
methods  of  financial  management  of  the  railroad  companies 
themselves. 

It  has  been  urged  against  the  present  system  of  rail- 
road receiverships  that  they  impose  on  the  courts  duties 
with  which  the  judges  are  ordinarily  not  prepared  to 
deal;  that  they  confer  on  the  judges  too  great  power  and 
too  much  patronage;  that  our  present  methods  of  reor- 
ganization of  an  insolvent  company  do  not  cure  the  evil 
of  stock  watering;  and  that  reorganizations  under  the 
present  plan  are  unduly  expensive.  Much,  moreover,  is 
made  of  the   fact  that  the  proceedings   for  receiverships 


560  RAILROAD  TRANSPORTATION 

are  frequently  instituted  by  the  directors  of  the  compa- 
nies, or  those  friendly  to  them,  for  the  purpose  of  pro- 
tecting themselves  against  the  real  creditors  of  the  com- 
pany. It  frequently  occurs  that  when  the  directors  or 
officers  of  a  road  see  that  the  company  is  threatened  with 
insolvency  they  will  apply  to  a  court  for  the  appoint- 
ment of  a  receiver.  In  making  the  application  the  offi- 
cials usually  suggest  one  of  their  own  number,  often  the 
president  of  the  company,  as  the  person  they  would  like 
the  court  to  select  for  the  receiver,  and  as  the  judge 
knows  he  must  secure  the  services  of  someone  who  is 
familiar  with  the  affairs  of  the  road,  he  is  usually  disposed 
to  appoint  the  person  recommended  by  the  applicants. 
The  term  "friendly  receiverships"  has  been  applied  to  such 
a  proceeding,  and  the  practice  is  open  to  the  objection 
of  continuing  in  virtual  control  of  the  road  the  very  person 
or  persons  under  whose  management  the  company  has  be- 
come insolvent.  While  the  company  is  in  the  hands  of  the 
receivers  it  does  not  have  to  pay  interest  on  the  bonds, 
and  money  for  the  improvement  of  the  road  can  be  borrowed 
by  the  sale  of  certificates.  As  Prof.  Henry  C.  Adams 
has  said, 

the  law  of  receivership  was  originally  intended  for  the  protec- 
tion of  the  creditor;  but  it  has  been  used  ...  as  a  means  of 
carrying'  the  management  of  large  properties  through  a  period 
of  general  commercial  depression  without  fear  of  interference 
from  creditors  or  from  interested  parties  ambitious  of  control. 

To  prevent  the  objectionable  results  of  friendly  receiver- 
ships it  has  been  suggested  that  a  law  should  be  enacted 
stipulating  that  the  first  receiver  appointed  by  the  court 
should  be  a  temporary  appointee,  and  that  the  permanent 
receivei  should  not  be  selected  until  after  the  creditors 
of  the  company  have  had  an  opportunity  to  be  heard.  Some 
persons    have   advocated    the    establishment   of   a   special 


COURTS  AND  RAILROAD  REGULATION  561 

Federal  court  for  the  management  and  reorganization  of 
insolvent  railroads.  The  judges  in  a  special  court  would 
become  experts,  and  as  there  would  be  but  one  court  there 
would  be  no  conflict  of  jurisdiction  between  different  courts. 
It  would  be  to  the  advantage  of  the  existing  courts  to  re- 
lieve them  of  the  management  of  railroads.  In  times  of 
prosperity  the  need  for  a  special  court  is  not  especially  ur- 
gent, but  in  periods  such  as  that  following  1873,  or  1893, 
or  1912,  when  the  number  of  applications  for  receiverships 
is  very  large,  it  would  probably  be  of  distinct  advantage 
for  the  business  to  be  looked  after  by  a  special  Federal 
court. 

REFERENCES 

On  the  power  of  the  Federal  courts  over  railway  rates  consult : 

The  "granger"  decisions,  1877,  particularly  Munn  v.  Illinois, 
94  U.  S.  114,  and  Peik  v.  Chicago  and  Northwestern  Rail- 
way, 94  U.  S.  164. 

The  commission  cases,  1886 — Stone  et  al.  v.  Farmers  Loan 
and  Trust  Company,  116  U.  S.  307. 

The  Minnesota  case,  1890 — Chicago,  Milwaukee  and  St.  Paul 
Railway  Co.  v.  Minnesota,  134  U.  S.  418. 

The  Nebraska  Maximum  Freight  Rate  case,  1898 — Smyth  v. 
Ames,  169  U.  S.  466. 
On  the  employment  of  injunctions  in  labor  disputes  read: 

Dunbar,  W.  H.  "Government  by  Injunction,"  in  Publica- 
tions of  the  American  Economic  Association,  Economic 
Studies,  III,  No.  1,  1898. 

Stimson,  J.  F.     Labor  in  Its  Relation  to  Law  (1895). 
On  railway  receiverships  consult : 

Swain,  H.  H.  "Economic  Aspects  of  Railroad  Receiver- 
ships," in  Publications  of  the  American  Economic  Associa- 
tion, Economic  Studies,  III,  No.  2,  1898.  [A  concise  dis- 
cussion of  the  nature  and  functions  of  receivers,  the  history 
and  statistics,  the  effects  and  the  future  of  receiverships. 
The  appendix  contains  a  critical  bibliography  of  sources  of 
information.] 


562  RAILROAD  TRANSPORTATION 

Daggett,  S.    Railroad  Reorganisation  (1908). 

Ripley,  W.  Z.    Railroads:  Finance  and  Organization  (i9I5)« 

Young,  James  T.  The  New  American  Government  and  Its 
Work  (1915). 

Dewsnup,  E.  R.  "Recent  Financial  Investigations  by  the  In- 
terstate Commerce  Commisison,"  in  Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  LXIII,  Janu- 
ary 1916. 


CHAPTER  XXXI 

THE    PROBLEM    OF    GOVERNMENT    OWNERSHIP    AND 
GOVERNMENT  REGULATION  IN  THE  UNITED  STATES 

The  twofold  nature  of  the  problem  of  government  regulation,  563. 
The  two  methods  of  government  control,  564.  Government 
ownership  a  question  of  expediency,  565.  The  experience  of 
one  country  not  necessarily  a  safe  guide  of  action  in  another, 
566.  Should  the  United  States  adopt  a  policy  of  government 
ownership?  567.  Probable  effect  of  such  a  policy  upon  the  rail- 
road service,  567.  Probable  effect  upon  rates,  569.  Socialization 
of  rates  and  fares  possible  under  government  ownership,  571. 
Effect  of  government  ownership  on  politics  and  government, 
572.  The  success  of  government  regulation  in  the  United 
States,  573.  Need  for  a  constructive  policy,  575.  Refer- 
ences, 577. 

The  problem  of  the  government  regulation  of  railways 
varies  in  its  concrete  manifestation  from/time  to  time, 
but  the  general  problem  is  a  permaneruVong.  There  are 
two  parts  to  this  permanent  problem  of  government  regu- 
lation of  raijroad  transportation,  two  duties  devolving  upon 
the  state/'One  i^io  adjust  the  relations  of  the  carriers 
with  each  other/;  the  other  is  to  maintain  an  equitable  re- 
lationship between  the  public  and  the  carriers  The  aim 
sought  by  the  carriers  is  an  increasing  business  at  rates 
that  will  yield  as  large  profits  as  can  be  obtained  without 
interfering  with  the  growth  of  traffic ;  the  interests  of  the 
public  served  by  the  railroads  require  that  the  service  shall 
be  progressively  efficient,  that  the  charges  shall  be  as  stable 
as  general  business  conditions  warrant,  and  shall  be  neither 
unreasonably  high  nor  unjustly  discriminatory  as  between 

563 


564  RAILROAD  TRANSPORTATION 

persons,  places,  or  kinds  of  traffic.  It  should  be  the  duty  of 
the  government  (i)  so  to  adjust  the  relations  among  the 
railroads  that  they  are  protected  from  unrestricted  compe- 
tition, but  at  the  same  time  so  to  supervise  their  cooperative 
activities  that  they  may  not  make  an  unjust  use  of  their 
quasi-monopoly  privilege,  and  (2)  so  to  adjust  the  rela- 
tions between  the  carriers  and  the  public  that  adequate  serv- 
ice is  provided  at  equitable  and  reasonable  rates. 

When  railway  transportation  was  in  its  earliest  stage 
of  development  it  was  believed  that  the  interplay  of  com- 
petitive forces  and  the  struggle  of  rival  interests  would 
result  in  an  equitable  and  satisfactory  adjustment  of  the 
relations  of  the  carriers  with  each  other  and  with  the  public, 
but  this  belief  was  not  borne  out  by  experience.  The 
history  of  railway  transportation  in  all  countries  shows 
conclusively  that  the  solution  of  the  various  phases  of 
the  railway  problem  cannot  be  accomplished  without  the 
interference  of  governmental  authority  in  one  way  or  an- 
other. 

The  twofold  problem  presented  to  the  government  by  the 
railway  business  may  be  dealt  with  in  either  one  of  two 
ways :  the  government  may  own  and  operate  the  railroads 
or  it  may  intrust  the  business  to  private  corporations  and 
regulate  by  law  the  services  and  charges  of  these  com- 
panies. The  former  method  has  been  followed  to  a  greater 
or  less  extent  by  the  majority  of  countries,  but  the  United 
States  and  in  general  the  countries  of  North  and  South 
America  have  adopted  the  plan  of  private  ownership  and 
government  regulation.  Because  of  the  very  large  mileage 
of  railways  in  America,  where  private  ownership  has  gen- 
erally prevailed,  the  mileage  of  privately  owned  roads  in 
the  world  is  considerably  greater  than  the  state-owned 
mileage,  but,  excluding  the  railways  of  America,  the  mileage 
of  roads  owned  and  operated  by  government  authority  is 
greater  than  that  controlled  by  private  agencies. 


GOVERNMENT  OWNERSHIP 


565 


Mileage  of  railways  of  the  world  owned  by  governments  and  by 
private  corporations,  iqii-iqi2 


Continent 

State 

Private 

Total 

Percent- 
age, 
State 

Percent- 
age, 
private 

Europe 

107,663 
12,190 
36,7IO 

11,478 
18,027 

99.632 

314.693 

26,581 

11,412 

1,235 

207,295 

326,883 

63,291 

22,890 

19,262 

51-9 

3-7 
58.0 
50.1 
93-6 

48.I 

96.3 
42.O 

49-9 
6.4 

America 

Asia 

Africa 

Australia 

Total 

186,068 

453.553 

639,621 

29. 1 

70.9 

The  question  as  to  whether  the  more  satisfactory  method 
of  dealing  with  the  railway  problem  is  by  government  own- 
ership or  by  private  ownership  and  government  regula- 
tion has  given  rise  to  much  controversy.  Before  entering 
upon  any  discussion  of  the  relative  merits  of  these  two 
methods  of  railway  control  it  may  be  well  to  say  that  the 
question  is,  for  most  people,  not  a  matter  of  principle  but 
solely  a  matter  of  expediency.  This  is  not  true  for  all 
persons,  however,  inasmuch  as  socialists,  and  others  who 
believe  in  the  ideas  which  socialists  have  with  respect  to 
the  relation  of  the  government  to  productive  industry,  look 
upon  the  question  entirely  as  one  of  principle.  To  them 
government  ownership  of  railways  is  a  part  of  an  ac- 
cepted political  program,  and  no  argument  as  to  expediency 
in  particular  cases  would  be  likely  to  induce  them  to  abandon 
the  general  principle  involved.  Most  people,  however,  be- 
lieve that  the  government  should  interfere  with  individual 
economic  activity  only  to  the  extent  that  is  necessary  for 
the  protection  of  the  interests  of  society  as  a  whole,  and 
among  such  people  the  question  of  government  ownership 
of  railways  is  merely  one  of  expediency.  All  will  admit 
that  the  development  of  the  railway  business  in  every 
country  has  given  rise  to  difficulties  which  have  made  neces- 
sary the  interference  of  the  government.    Whether  this  in- 


566  RAILROAD  TRANSPORTATION 

terference  should  proceed  to  the  extent  of  nationalization 
of  the  railways  depends  upon  whether  the  railway  problem 
in  particular  cases  can  be  solved  best  by  such  a  program,  and 
whether  the  general  interests  of  society  would  be  best  served 
by  the  adoption  of  such  a  plan. 

It  must  be  borne  in  mind  too  in  the  discussion  of  this 
problem  that  the  experience  of  one  country  is  not  neces- 
sarily a  safe  guide  of  action  for  the  people  of  another 
country.  The  fact  that  government  ownership  has  proved 
successful  in  Prussia  is  no  reason  for  believing  that  it 
would  prove  successful  in  the  United  States,  and  the  fact 
that  private  management  failed  in  Italy  offers  no  safe 
ground  for  the  conclusion  that  it  would  have  failed  in 
Prussia.  Each  nation  has  its  own  peculiar  social,  economic 
and  political  conditions  and  the  problems  of  each  nation 
must  be  worked  out  on  the  basis  of  experience  and  with 
reference  to  its  particular  conditions  of  national  life^  For 
this  reason  it  cannot  be  assumed  that  either  method  of 
railway  control  is  the  better  method  for  all  countries,  nor 
can  it  be  said  with  certainty  that  the  time  will  ever  come 
when  all  countries  will  adopt  the  same  means  of  dealing 
with  the  railway  problemy 

One  thing,  however,  which  seems  reasonably  certain, 
is  that  no  country  will  find  it  permanently  advantageous 
to  have  both  private  and  government  operation  of  rail- 
roads within  the  same  region.  The  dual  system  of  private 
railroads  and  government  lines  has  been  shown  by  the 
experience  of  European  and  other  countries  to  be  imprac- 
ticable. Private  ownership  and  government  regulation  have 
been  found  to  work  successfully  in  certain  countries ;  like- 
wise government  ownership  and  operation  have  proven 
satisfactory  in  a  number  of  countries ;  but  the  lesson  of 
experience  1S  lhat  the  success  of  government  ownership 
depends  upon  the  complete  nationalization  of  railroads  and 
upon  the  management  of  the  nationalized  system  with  refer- 


GOVERNMENT  OWNERSHIP  567 

enceto_the  furtherance  of  clearly  dHincd_pn1iiirn1  and 
ecoHomicends. 

There  arc  many  persons  who  believe  that  as  a  matter  of 
expediency  the  Government  of  the  United  States  should 
acquire  and  operate  the  railroads  of  the  country.  Would 
it  be  wise  for  the  people  of  the  United  States  to  bring 
about  the  adoption  of  this  policy?  In  seeking  for  an  an- 
swer to  this  question  the  point  of  chief  importance  to  keep 
in  mind  is  that  the  primary  interest  of  the  public  in  the 
railways  is  to  secure  adequate  service  at  rates  which  are 
reasonable  and  equitable ;  and  consequently  the  first  ques- 
tions to  consider  are:  Would  the  railways,  if  owned  by  the 
government,  offer  as  adequate  service  as  when  operated 
by  private  agencies?  And  would  the  rates  be  any  more 
nearly  just  and  equitable? 

The  adequacy  of  the  service  which  railways  offer  depends 
upon  the  progressive  improvement  of  all  the  railway  equip- 
ment and  upon  the  efficiency  with  which  the  lines  are 
operated.  If  the  Government  of  the  United  States  owned 
the  railroads,  presumably  the  appropriations  for  improve- 
ments and  extensions  of  the  service  would  be  made  by 
Congress.  When  one  considers  the  way  in  which  public 
money  has  been  distributed  in  the  past  for  such  purposes 
as  the  improvement  of  waterways  and  the  construction  of 
public  buildings,  there  is  small  ground  for  hope  that  ex- 
penditures for  railway  improvement  would  be  made  eco- 
nomically or  distributed  wisely.  It  would  be  virtually  im- 
possible to  prevent  the  appropriation  of  money  for  im- 
provements, the  chief  purpose  of  which  would  be  to  cause 
the  expenditure  of  government  funds  in  certain  districts. 
Political  considerations  might  too  often  have  more  weight 
than  the  needs  of  the  railways,  and  the  leaders  of  the 
political  party  in  power  might  insist  that  railway  improve- 
ments should  be  made  where  they  would  be  of  most  ad- 
vantage to  the  party. 


568  RAILROAD  TRANSPORTATION 

Moreover,  there  are  few  who  believe  that  the  opera- 
tion of  the  railways  by  the  government  would  be  as  effi- 
cient as  operation  by  private  corporations.  The  stress  of 
competition  which  acts  as  a  constant  incentive  to  greater 
efficiency  in  private  business  is  absent  in  the  administration 
of  government  affairs.  While  it  cannot  be  said  that  either 
railway  transportation  or  any  other  kind  of  productive  ac- 
tivity in  the  United  States  has  been  carried  on  with  as  high 
a  degree  of  efficiency  as  is  possible  and  desirable,  yet  the 
administrative  capacity  displayed  by  government  officials 
usually  suffers  in  comparison  with  that  of  the  officials 
of  leading  business  corporations,  and  certainly  there  has 
been  more  rapid  progress  and  improvement  in  the  con- 
duct of  private  business  than  in  the,  conduct  of  the  af- 
fairs of  the  various  governmental  agencies  of  the  United 
States.  J 

One  way  in  which  the  efficiency  of  the  railways  would 
suffer  under  government  ownership  would  be  through  the 
employment  of  a  less  capable  and  effective  force  of  laborers 
and  officials.  /Though  most  employees  would  be  chosen  by 
means  of  competitive  tests  /under  civil  service  rules  and 
regulations,  yet  the  temptation  for  political  leaders  to  reward 
"deserving"  members  of  their  parties  with  official  positions 
would  probably  be  too  great  to  be  resisted ;  and  either 
the  railway  service  would  be  intrusted  to  the  supervision 
of  incompetent  officials,  or  a  large  number  of  sinecures 
would  be  created  for  favored  individuals,  who  would  receive 
pay  for  the  work  done  in  a  large  measure  by  others  much 
more  worthy  of  recognition.  The  present  methods  of  select- 
ing high-salaried  postmasters  and  of  choosing  thousands 
of  other  employees  and  officials  of  the  Federal,  State,  and 
local  governments  show  that  ability  and  fitness  are  only 
too  often  not  given  substantial  consideration  in  appointments 
and  elections.  That  it  would  be  possible,  under  the  present 
system  of  government  in  the  United  States,  to  eliminate 


GOVERNMENT  OWNERSHIP  569 

the  political  "spoils  system"   from  a  government  railway 
service  is  difficult  to  believe. 

With  regard  to  rates,  the  adherents  of  the  policy  of  gov- 
ernment ownership  claim  that  the  government  could  avoid 
the  expenses  due  to  competition  and  to  the  maintenance  of 
a  large  number  of  corporations,  and  that  inasmuch  as  the 
government  would  not  seek  to  make  a  profit  out  of  the 
operation  of  the  railroads,  it  would,  therefore,  be  able  to 
charge  lower  and  more  "reasonable"  rates  than  are  charged 
by  the  private  corporations.  Though  the  government  would 
be  forced  to  go  heavily  into  debt  to  purchase  the  existing 
systems,  yet  the  rate  of  interest  it  would  have  to  pay  would 
be  so  low  that,  if  the  government  continued  to  exact  the 
rate  of  return  now  secured  by  the  railroad  companies,  it 
would  have  not  only  enough  to  pay  annual  interest  charges, 
but  a  surplus  to  contribute  to  a  sinking  fund  by  which 
the  debt  eventually  would  be  extinguished.  In  this  way 
there  would  be  for  a  long  time  a  constant  and  progressive 
reduction  in  rates.  ( 

In  such  a  calculation  as  this,  however,  it  is  assumed  that 
operating  expenses  would  be  no  more  in  proportion  to 
operating  revenues  than  they  are  when  the  railways  are 
privately  owned,  that  is,  that  the  operation  of  the  railroads 
by  the  government  would  be  equally  as  efficient  as  operation 
by  private  corporations  and  that  wages,  costs  of  supplies, 
and  other  expenses  would  be  equally  as  low  under  state 
as  under  private  management.  As  has  already  been  said 
there  is  good  reason  to  doubt  that  the  government  would 
maintain  the  degree  of  efficiency  reached  by  private  corpora- 
tions. Moreover,  it  is  a  well-known  fact  that  the  govern- 
ment usually  pays  higher  wages  and  exacts  shorter  working 
days  than  do  the  private  corporations.  However  desirable 
this  might  be  from  a  social  point  of  view,  the  fact  would 
remain  that  it  would  probably  cause  an  increase  in  operat- 
ing expenses  sufficient  to  prevent  any  decrease  in  rates; 


570  RAILROAD  TRANSPORTATION 

in  fact  the  increase  might  make  it  necessary  to  charge 
higher  rather  than  lower  rates. 

It  is  by  no  means  certain  that  government  operation  would 
prevent  discrimination  in  rates.  Here  again  the  influence 
of  political  considerations  and  the  dominance  of  certain 
groups  of  economic  interests  would  have  telling  effect.  The 
history  of  tariff  legislation  in  the  United  States  reveals 
a  continuous  struggle  among  rival  industrial  interests  and 
among  different  geographical  sections  for  preferential  treat- 
ment in  the  determination  of  import  duties.  If  the  nation 
is  unable  to  apply  scientific  methods  to  tariff  legislation,  it 
is  useless  to  suppose  that  a  method  of  fixing  railroad  rates 
would  be  established  in  which  satisfactory  consideration 
would  be  given  to  all  the  varied  economic  interests  of  the 
country. 

In  considering  only  the  questions  of  service  and  charges 
it  is  difficult  to  avoid  the  conclusion  that  government  owner- 
ship would  be  an  unwise  policy.  There  are,  however, 
certain  features  of  the  problem  of  railway  transportation, 
other  than  the  question  of  service  and  rates,  which  must 
be  taken  into  account  in  weighing  the  advisability  of  govern- 
ment ownership  of  railways  in  the  United  States.  One  ad- 
mirable feature  of  government  ownership  would  be  that 
the  more  or  less  speculative  stocks  and  bonds  of  railway 
companies  would  be  converted  into  sound  investment  se- 
curities. Railway  securities  would  take  the  form  of  govern- 
ment bonds  in  which  individuals,  insurance  and  trust  com- 
panies, and  banks  might  safely  invest  surplus  funds.  It  is 
certainly  desirable  that  some  method  be  devised  to  prevent 
such  needless  destruction  of  the  value  of  securities  as  has 
been  witnessed  in  recent  years  in  connection  with  the  man- 
agement of  the  New  Haven,  the  Rock  Island,  and  other 
railroads.  The  removal  of  railway  securities  from  the  field 
of  speculation  would  unquestionably  be  one  of  the  com- 
mendable results  of  government  ownership. 


GOVERNMENT  OWNERSHIP  571 

It  would  be  possible,  if  the  railways  of  the  United  States 
were  nationalized,  to  fix  rates  and  fares\yith  regard  to 
the  promotion  of  social  progress/  Under  private  manage- 
ment rates  and  fares  are  determined  almost  entirely  by 
business  considerations^  and  even  when  the  government 
establishes  "reasonable"  rates  and  fares,  which  railroad 
corporations  are  required  to  observe,  consideration  is  given 
chiefly  to  the  cost  of  the  service  to  the  railroads  and  to  the 
value  of  the  service  to  the  shippers,  and  seldom,  if  ever,  to 
the  social  and  economic  needs  of  the  nation  as  a  whole.  In 
foreign  countries  where  state  ownership  prevails,  passenger 
fares  have  been  arranged  with  reference  to  increasing  travel 
for  educational  purposes  and  to  relieving  the  congestion 
of  population  in  urban  districts,  freight  rates  have  been 
adjusted  to  promote  certain  lines  of  economic  development, 
and  railroads  have  been  constructed  in  furtherance  of 
particular  national  policies  of  military  defense  or  aggression. 
In  the  United  States  the  primary  objects  kept  in  view  in 
the  determination  of  railway  rates  and  fares  have  been 
the  necessary  income  of  the  railroads  and  "what  the  traffic 
will  bear."  The  general  welfare  of  society  except  as  it 
has  been  affected  by  these  considerations,  has  been  given  but 
little  thought. 

It  must  be  said,  however,  that  in  attempting  to  adjust 
freight  rates  for  the  purpose  of  promoting  and  encouraging 
particular  industries,  there  would  be  an  inevitable  clash  of 
interests  which  would,  in  all  probability,  result  in  discrimina- 
tions against  the  less  powerful.  Discriminations  of  this  sort 
exist  in  Germany,  and  they  would  be  even  more  likely  to 
occur  in  the  United  States.  The  selection  of  the  industries 
to  be  favored  would  be  a  political  question,  and  while  the 
choice  might  be  that  of  the  majority  of  the  people,  the 
resulting  discrimination  would  not,  for  that  reason,  neces- 
sarily be  just.''  Attempts  to  socialize  passenger  fares  under 
government    ownership    would    in    all    probability   produce 


572  RAILROAD  TRANSPORTATION 

much  better  results  than  attempts  to  socialize  freight 
rates. 

In  dealing  with  the  question  of  government  ownership  of 
railroads  one  must  consider  not  only  the  effects  which 
the  adoption  of  such  a  policy  would  have  upon  the  trans- 
portation business  and  its  relation  to  the  public,  but  must 
also  look  for  the  probable  effects  which  the  change  would 
have  upon  politics  and  government.  One  of  the  immediate 
results  of  nationalization  would  be  the  increase  in  the 
number  of  government  employees  by  nearly  two  million, 
most  of  whom  would  be  voters.  An  effective  organization 
of  such  a  large  number  of  vomers  would  be  able  to  exercise 
an  overwhelming  influence  upon  State  and  national  politics. 
It  might  be  said  that  such  a  statement  would  be  equally 
true  if  the  railroads  were  to  remain  under  private  man- 
agement, but  it  must  be  remembered  that  the  incentive  to 
exercise  political  power  would  be  much  greater  if  the  govern- 
ment were  to  have  entire  control  of  the  railroad  business. 
The  history  of  past  efforts  to  deprive  the  interests  in  control 
of  the  railways  of  their  power  to  exercise  an  unwholesome 
influence  in  politics  should  be  sufficient  warning  against 
creating  a  force  which  would  be  even  more  powerful  and 
equally  injurious  to  public  morality.  Conditions  which  make 
it  possible  for  a  particular  interest  to  become  the  immediate 
and  direct  beneficiary  of  a  legislative  program  are  an  in- 
vitation to  attempts  to  secure  political  favoritism.  /A  great 
deal  of  the  corruption  of  politics  in  the  United  States  in 
past  years  has  arisen  because  special  interests  have  sought 
to  exercise  an  undue  influence  on  legislation,  and  because 
political  leaders  have  often  followed  a  course  intended  to 
attract,  and  sometimes  even  to  compel,  the  support  of  such 
interests. f 

Before  one  can  finally  dismiss  as  unwise  the  suggestion 
that  the  Government  should  own  and  operate  the  railroads 
in  the  United   States,  it  is  necessary  to  inquire  whether 


GOVERNMENT  OWNERSHIP  573 

private  ownership  and  regulation  can  show  any  better  results 
than  are  to  be  expected  should  the  policy  of  state  ownership 
be  adopted/  Can  the  railway  problem  be  solved  by  govern- 
ment regulation,  and  can  it  be  solved  without  effects  on 
the  transportation  service  and  the  public  equally  as  in- 
jurious as  the  effects  which  would  probably  follow  railway 
nationalization? 

The  policy  of  railway  regulation  was  inaugurated  in  the 
United  States  because  the  public  served  by  the  railroads 
was  being  subjected  to  unfair  and  discriminatory  treat- 
ment by  the  railway  companies/''  The  railroad  interests 
uniformly  opposed  all  endeavors  which  were  made  to  regu- 
late their  business  by  law,  and  it  took  nearly  20  years  after 
the  enactment  of  the  Interstate  Commerce  law  of  1887 
for  the  Federal  Government  to  establish  a  scheme  of  regu- 
lation by  which  adequate  protection  against  unfair  rates 
and  practices  was  accorded  to  the  general  shipping  and 
traveling  public.  It  was  during  this  period  that  govern- 
ment ownership  of  railways  began  to  be  discussed  as  the 
only  possible  means  of  escape  from  the  situation.  /  If  it 
were  impossible  for  the  government  to  regulate  the  rail- 
ways under  private  ownership^the  only  alternative  was  for 
the  government  to  own  them.'  Eventually,  however,  the 
task  of  supplying  suitable  machinery  for  regulation  was 
accomplished,  and  the  right  and  power  of  the  government 
to  protect  the  public  from  discriminatory  and  unfair  treat- 
ment by  the  carriers  was  completely  demonstrated/  Ade- 
quate protection  against  improper  rates  was  obtained  by 
the  laws  enacted  in  1903,  1906  and  1910.  The  legislation 
of  those  years  was  strengthened  by  the  Transportation  Act 
of  1920.  Moreover,  in  the  law  of  1920  Congress  gave  the 
Interstate  Commerce  Commission  the  authority  to  regulate 
railroad  capitalization,  in  furtherance  of  the  policy  of  pro- 
tecting the  public  interest  against  unfair  railroad  practices. 

There  is  no  doubt  that  the  public  can  secure  adequate 


574  RAILROAD  TRANSPORTATION 

protection  against  unjust  practices  by  the  railroads  as  well 
by  government  regulation  as  through  government  owner- 
ship. Moreover,  government  regulation  affords  an  effective 
means  of  correcting  offensive  discriminations  and  of  pre- 
venting unduly  high  charges,  without  inviting  the  grave 
political  consequences  which  would  probably  follow  gov- 
ernment ownership.  In  no  important  particular  does  gov- 
ernment ownership  offer  advantages  not  now  secured  un- 
der government  regulation,  unless  it  be  in  the  matter  of 
the  socialization  of  rates  and  fares.  While  an  adjustment 
of  rates  and  fares  with  a  view  to  promoting  certain  social 
changes  instead  of  for  the  purpose  of  meeting  the  financial 
needs  of  the  carriers  might  be  highly  desirable  in  many 
respects,  it  is  doubtful  if  the  practice  would  compensate 
for  the  disadvantages  which  the  policy  of  government  own- 
ership would  entail. 

But  while  government  regulation  has  afforded  an  ade- 
quate means  of  protecting  the  public  against  unjust 
action  by  the  railway  companies,  does  it  offer  an  effective 
solution  of  the  other  phases  of  the  transportation  problem 
which  confronts  the  government?  It  must  be  remem- 
bered that  this  problem  is  twofold,  inviiliang-4be-TegulaLion 

Of    the    relations    hetWppn    ik*>— run  ieTH    llipmgplvps    anrl    rhf^ 
rpgnTaTTnrT  of     thp    relations    hetwflftn     t^e    p^MiV    anrl    jhp 
caTnersT 

*  As  has  been  pointed  out  in  the  chapters  discussing  rail- 
way regulation  in  the  United  States,  the  railway  laws,  both 
State  and  Federal,  previous  to  1920,  were  framed  with  the 
one  idea  of  affording  the  public  protection  from  the  unfair 
methods  employed  by  the  railroad  companies  in  adjusting 
charges  and  services.  Laws  for  the  regulation  of  the  rela- 
tions between  the  carriers  and  the  public  contained  provi- 
sions designed  to  prevent  the  railroads  from  charging  un- 
duly high  and  discriminatory  rates ;  little  thought  was 
given  to  the   fact  that  in   establishing  equitable   relations 


GOVERNMENT  OWNERSHIP  575 

between  the  carriers  and  the  public,  it  was  equally  impor- 
tant that  the  carriers  should  not  be  prevented  from  charg- 
ing rates  which  would  provide  an  income  large  enough  to 
permit  the  maintenance  of  efficient  service  and  to  invite 
the  investment  of  new  capital.  In  regulating  the  relations 
between  carriers  the  early  laws  were  framed  to  prevent 
combination  and  cooperation  of  competing  lines,  with  the 
idea  of  protecting  the  public  from  monopoly ;  no  recogni- 
tion was  given  to  the  obvious  historical  fact  that  competi- 
tion and  not  cooperation  had  been  the  source  of  the  most 
important  features  of  the  railway  problem,  and  that  in  the 
regulation  of  the  relations  among  the  carriers  the  greatest 
interest  at  stake  was  that  of  the  carriers  and  not  of  the 
public.  In  a  word,  the  point  of  view  of  those  who  framed 
the  laws  for  the  regulation  of  railroads  in  the  United 
States  before  1920  was  one-sided;  it  was  this  fact  which 
caused  most  of  the  confusion,  complexity  and  inadequacy 
of  the  former  methods  of  regulation. 

It  must  be  said,  however,  that  there  was  much  justifica- 
tion for  this  point  of  view.  As  long  as  the  railroad  inter- 
ests strenuously  opposed  the  efforts  made  to  correct  condi- 
tions which  were  obviously  a  source  of  injustice,  there  was 
unquestionably  a  need  for  regulation  directed  against  the 
railways.  There  can  be  no  doubt  whatever  that  the  most 
vital  phase  of  the  railway  problem  in  the  United  States 
has  been  the  need  of  compelling  the  carriers  to  accord  just 
and  equitable  treatment  to  all  their  patrons.  It  was  appar- 
ently forgotten  that  there  were  other  factors  of  the  problem. 
These  forgotten  factors  eventually  came  to  occupy  the  posi- 
tion of  chief  importance  in  the  railroad  problem.  The 
failure  of  legislators  to  grasp  the  problem  of  railway  regu- 
lation in  its  entirety  resulted  in  the  enactment  of  laws  based 
upon  false  theories  and  in  the  adoption  of  methods  of  reg- 
ulation, the  value  of  which  was  open  to  serious  question. 
The  passage  of  the  Transportation  Act  in  1920  was  a  be- 


576  RAILROAD  TRANSPORTATION 

lated  recognition  of  the  inadequacy  of  previous  legislation. 
This  law  should  do  much  to  remove  the  objections  to  the 
former  railroad  policy. 

While  it  seems  clear  that  government  regulation  rather 
than  government  ownership  is  to  be,  and  ought  to  be, 
favored  in  the  United  States,  it  is  equally  apparent  that 
the  past  methods  of  regulation  have  not  been  entirely  sat- 
isfactory. Whether  the  policy  embodied  in  the  Transporta- 
tion Act  will  prove  adequate  to  the  needs  of  the  country 
remains  to  be  seen.  In  other  words,  public  regulation  is 
still  on  trial,  and  until  it  proves  completely  successful,  the 
alternative  of  government  ownership,  regardness  of  its  con- 
sequences, i£not  impossible.  The  fact  of  pressing  impor- 
tance is  that  adequate  railway  transportation  is  absolutely 
necessary  to  the  prosperity  of  the  country,  and  if  it  cannot 
be  obtained  under  private  ownership  other  methods  must 
be  tried.  If  government  regulation  retards  railway  prog- 
ress or  results  in  retrogression  rather  than  advance,  either 
it  must  be  modified  and  adapted  to  suit  the  needs  of  the 
country,  or  private  ownership  of  railways  must  be  dis- 
continued. It  is  most  unlikely,  however,  that  government 
ownership  will  come  in  the  near   future. 

Government  regulation  has  by  no  means  been  a  failure. 
It  has  accomplished  a  great  amount  of  good,  but  it  has 
not  been  an  unqualified  success.  Congress,  in  its  recent 
legislation,  has  shown  a  disposition  to  work  out  a  con- 
structive policy  which  will  permit  the  continuance  of  pri- 
vate ownership  under  conditions  in  which  the  interests  of 
both  the  public  and  the  railroads  will  be  properly  conserved. 
The  retention  of  private  ownership,  under  adequate  regu- 
lation, seems  a  far  wiser  policy,  at  least  for  the  immediate 
future,  than  for  the  Government  of  the  United  States  to 
attempt  the  enormous  and  even  dangerous  task  of  pur- 
chasing and  operating  two-fifths  of  the  railway  mileage 
of  the  world. 


GOVERNMENT  OWNERSHIP  577 


REFERENCES 

Dunn,  S.  O.     Government  Ownership  of  Railways  (1913). 

Johnson,  E.  R.    Elements  of  Transportation,  chap,  xviii  (1909). 

Lewis,  D.  J.  Railway  Nationalization.  (Senate  Doc.  No.  53, 
56  Cong.,  1  sess.,  1900.) 

Library  of  Congress.  A  List  of  Books  Relating  to  Railroads  in 
Their  Relation  to  the  Government  and  the  Public  (1907). 

.  Select  List  of  Books  on  Railroads  in  Foreign  Coun- 
tries; Government  Regulation  (1905). 

Bureau  of  Railway  Economics.  List  of  Publications  Pertain- 
ina  to  Government  Ownership  of  Railways   (1914). 


QUESTIONS  AND   TOPICS   IN 
PRINCIPLES  OF  RAILROAD  TRANSPORTATION 


QUESTIONS  AND  TOPICS  IN 

PRINCIPLES  OF  RAILROAD  TRANSPORTATION 


INTRODUCTION— DEFINITION   AND  SCOPE  OF  TRANS- 
PORTATION 

1.  Define  transportation. 

2.  Distinguish    the    transportation    system    from   the    service. 

3.  The  three  purposes  of  the  study  of  the  transportation  service. 

4.  Define    transportation    economics. 

5.  Define  economics  or  political  economy. 

6.  How  may  the   place   of   transportation   economics   in  political 

economy  be  explained? 

7.  Define  production,  intrinsic  utility,  place  utility. 

8.  Justify  the  statement  that  transportation  is  a  part  of  the  process 

of  production. 

9.  Explain  how  production  is  influenced  by  consumption. 

10.  How  is  the  consumption  of  wealth  affected  by  transportation 

development  ? 

11.  Define  commerce,  and  state  the  relation  of  transportation  to 

commerce. 

12.  Of  what  three  factors  is  wealth  the  product?     What  is  the 

income   from   each   factor? 

13.  What  two  kinds  of  rent  are  there?     Which  is  determined  by 

transportation   facilities? 

14.  What  is   the   twofold   relation  of   transportation  development 

to  interest? 

15.  How  does  transportation  development  affect  real  wages? 

16.  What  transportation  facilities  are  provided  by  the  government? 

17.  Is  the  railroad  company  a  public  corporation  or  a  private  cor- 

poration?   Is  its  service  of  a  public  or  a  private  nature? 

18.  What  is  meant  by  "a  service  of  a  public  nature"? 

19.  In  what   sense   is  the  study  of   transportation  a  part  of   the 

study  of  political  science? 

581 


582  QUESTIONS  AND  TOPICS 

II 
ORIGIN  OF  THE  AMERICAN  RAILROAD 

J.    Development  of  Highways 

1.  Why  did  highway  improvement  come  later  in  the  United  States 

than  in  Europe? 

2.  What  local  governments  constructed  the  early  highways  in  New 

England?    In  the  middle  States?    In  the  South? 

3.  Why  were  toll  roads  called  "turnpikes"? 

4.  When  did  turnpike  companies  begin  road  construction?    What 

is  a  turnpike  company? 

5.  Give  an  account  of  the  Lancaster  Pike. 

6.  The  extent  of  turnpike  construction  in  Pennsylvania. 

7.  Give  the  history  of  the  Cumberland  Road  or  National  Pike. 

8.  Why  did  the  Federal  Government  stop  constructing  and  later 

stop  aiding  road  building? 

9.  When  did  the  States  take  up  the  work  of  road  building? 

10.  Why  did  the  States  abandon  highway  construction? 

11.  The  "good  roads"  movement  beginning  about  1890. 

12.  Present  highway  policies  of  the  States. 

2.   Development  of  Inland  Waterways 

13.  Beginning  of  the   agitation    for   improvement  of    waterways; 

Washington's  connection  therewith. 

14.  The  two  purposes  of  early  canal  systems:   (a)  to  connect  an- 

thracite coal  fields  with  the  seaboard;  (b)  to  connect  the  At- 
lantic seaboard  with  the  Great  Lakes  and  Ohio  River. 

15.  The   anthracite  tidewater   canals:     Lehigh   Navigation;   Dela- 

ware Division  Canal  (Bristol  to  Easton)  ;  Schuylkill  Navi- 
gation; Delaware  and  Hudson  Canal  (Honesdale  to  R011- 
dout)  ;  Morris  Canal  (Easton  to  New  York  Harbor)  ;  Dela- 
ware and  Raritan  Canal  (Bordentown  to  New  Brunswick)  ; 
Susquehanna   and   Tidewater   Canal. 

16.  The  canals  connecting  the  East  and  the  West:  Erie  Canal  and 

other  New  York  canals.  Pennsylvania  public  works.  Chesa- 
peake and  Ohio  Canal. 

J.    Origin  of  the  Railroad 

17.  The  industrial  revolution  inaugurated  by  the  locomotive. 


QUESTIONS  AND  TOPICS  583 

1 8.  The  Quincy  tramway. 

19.  The  invention  of  Stephenson's  "Rocket."     The  two  mechanical 

features  that  made  the  Rocket  a  success. 

20.  The  beginning  of  the  Baltimore  and  Ohio  Railroad. 

21.  Beginning  of  the  New  York  Central. 

22.  The  Camden  and  Amboy,  and  the  Philadelphia,  Wilmington  & 

Baltimore. 

23.  The  early  lines  in  New  England. 

24.  The  Charleston  and  Hamburg  Railroad. 

25.  The  Columbia  Railroad. 

26.  The  origin  of  the  Reading  Railway. 

27.  Discuss  the  relative  value  of  highways,  waterways,  and  steam 

railroads  as  means  of  transportation. 

28.  Would  it  be  a  wise  policy  for  the  United  States  Government 

to  construct  a  comprehensive  system  of  artificial  waterways 
in  the  territory  east  of  the  Mississippi  River? 

Ill 

GROWTH  OF  THE  AMERICAN  RAILROAD  NET 

1.  Reasons   for  studying   the   railroad   net. 

2.  Where  were  the  railroads  of  the  first  ten  years  of  construction 

located?     Cities  from  which  they  radiated. 

3.  Characteristics  of  the  period  of  1840  to  1850: 

a.  Slow  growth  from  2,818  to  9,021  miles.    Reasons. 

b.  Most  construction  still  along  the  Atlantic. 

c.  Beginning  in  the  middle  West. 

d.  Feasibility  of  railroads  as  freight  carriers  not   fully 

recognized. 

e.  Advance  of  technical  knowledge  not  rapid  during  the 

decade. 

4.  The  period  from  1850  to  i860: 

a.  Rapid  growth  from  9,021  to  30,626  miles. 

b.  Reasons  for  rapid  growth:    (1)   An  era  of  industrial 

growth;  (2)  westward  expansion;  (3)  larger  use  of 
farm  machinery;  (4)  California  gold  discovery; 
(5)  public  land  grants;  (6)  a  decade  of  speculation. 

c.  Where  was  construction  most  active? 

d.  Beginning   of    railroad    consolidation. 

e.  The  consolidations  by  which  the  New  York  Central 

system  was  established. 


584  QUESTIONS  AND  TOPICS 

f.     Early  history  of  the  Pennsylvania  Railroad. 

5.  Period  of  the  Civil  War  to  1890: 

a.  Where  was  the  hulk  of   railroad   construction? 

b.  Great  rapidity  of  construction  from  1868-1873  (28,000 

miles)    and   1880-1890   (90,000  miles). 

c.  Interruption  caused  by  panic  of  1873. 

d.  Large  Federal   land  grants. 

e.  What  was  the  effect  of  government  land  grants? 

f.  What  and  when   was  the  first  transcontinental  rail- 

road constructed  ?     Reasons  for  the  building  of  this 
line.     Difficulties  encountered. 

g.  Atchison,  Topeka  and  Santa  Fe. 
h.     Northern  Pacific. 

i.     Great   Northern. 

j.     Other  transcontinental  lines. 

k.     Construction  in  the  South. 

6.  Period  1890  to  1900.    What  were  the  reasons  for  the  decreased 

rate  of  construction? 

7.  Construction  since  1900. 

8.  How   does    the    mileage    in   the   United    States    compare    with 

that  in  Europe? 

9.  How  does  the  capital  invested  in  railroads  compare  with  that 

of  other  industries? 

10.  What  will  be  the  probable  trend  of  future  railway  construction 

in  the  United  States? 

11.  Why   is    railroad   construction    more   expensive    now    than    in 

former  years? 

IV 

THE  MECHANISM  OF  THE  RAILROAD— DEVELOPMENT 
OF  TRACK  AND  LOCOMOTIVE 

1.  Early  track  construction  in  the  United  States. 

2.  The  development  of  the  railroad  rail : 

a.  Form  and  material. 

b.  Weight  and  length. 

c.  Methods  of  manufacture. 

3.  The  railroad  crosstie  : 

a.  Leading  kinds  of  wood  used. 

b.  What  has  prevented  the  extensive  use  of  metallic  ties? 

c.  Leading  methods  of  tie  preservation. 


QUESTIONS  AND  TOPICS  585 

4.  Ballast :  purpose ;  chief  materials. 

5.  Early  history  of  the  locomotive  in  the  United  States. 

6.  What  were  the  chief  early  improvements  in  locomotives  made 

by  American  inventors? 

7.  The  American  type  of   locomotive. 

8.  The  development  of  other  types. 

9.  Classification  of  locomotives. 

to.     What   are   the   leading   types   of   locomotives   used   in    freight 

service?     In  passenger   service? 
ir.     What  are  the  advantages  of  the  compound  locomotive? 

12.  Why  has  the  compound  locomotive  not  been  used  extensively  in 

the  United  States? 

13.  The  superheater. 

14.  The  weight  of  modern  locomotives. 

15.  What  are  the  chief  advantages  of  heavy  locomotives? 

16.  What  types  of  locomotives  are  used  for  freight  and  passenger 

services  on  the  railroads  with  which  you  are  most  familiar? 

17.  Why    are    switching   locomotives    usually   constructed   without 

truck  wheels? 


THE  MECHANISM  OF  THE  RAILROAD   (Concluded)—  THE 
CAR,  TERMINAL  AND  OPERATION 


The  development  of  the  passenger  car. 

Leading  types  of  passenger  cars. 

Advantages  of  the  steel  passenger  car. 

The  development  of  the  air  brake. 

The  development  of  the  freight  car. 

How  are  freight  cars  specialized? 

What  are  the  advantages  of  large  freight  cars? 

What  are  the  essential  parts  of  a  passenger  terminal? 

The  chief  features  of  a  passenger  station: 

a.  Train  shed  and  tracks. 

b.  Concourse. 

c.  Waiting  rooms. 

d.  Ticket  and  baggage  offices. 
10.     The  freight  terminal : 

a.  Freight  houses,  team  tracks,  industrial  sidings. 

b.  Freight  yards. 

c.  Transfer  house. 


586 


QUESTIONS  AND  TOPICS 


ir.     Locomotive  terminal  facilities. 

12.  The  electric  telegraph  and  train  operation. 

13.  The  science  of  signaling. 

14.  The  substitution  of  electricity  for  steam  as  motive  power  on 

railroads.      In    what    fields    of    steam    railroad    service    can 
electricity  be  most  advantageously  used  as  motive  power? 

15.  Why  is  the  problem  of  electrification  of  steam  railroads  likely 

to  become  of  great  importance? 

16.  What  influence  have  specialized  freight  cars  had  on  economic 

development  in  the  United  States? 

17.  How  do  European  passenger  cars  differ  from  those  used  in 

the  United  States? 

VI 


THE    PRESENT    RAILROAD    SYSTEM    OF    THE    UNITED 

STATES 

1.  Into  what   three   and   into   what   seven   territorial   groups   ma> 

the   American   railroad   system   be   divided?     What   are   the 
characteristics  of  each? 

2.  What  is  meant  by  "community  of   interest"   and  what  is  its 

effect  ? 

3.  What  are  the  leading  purposes  of  consolidation? 

4.  What  are  the  leading  methods  of  consolidation? 

5.  Where  and  what  are  the  leading  constituent  lines  of  the  Van- 

derbilt  system? 

6.  Where    and    what    are    the    leading    constituent    lines    of    the 

Pennsylvania   system  ? 

7.  Where    and    what    are    the    leading    constituent    lines    of    the 

Morgan  system? 

8.  Where    and    what    are    the    leading    constituent    lines    of    the 

Hill  system? 

9.  Where    and    what    are    the    leading    constituent    lines    of    the 

Union  Pacific-Southern  Pacific  system? 

10.  Other  leading  railroad  systems. 

11.  What    relation    is    there    between    the    consolidation   of    rail- 

roads and  the  territorial  groups? 

12.  Present  tendencies  in  railroad  consolidation. 

13.  What  are  the  two  methods  of  measuring  the  supply  of  railway 

facilities  ? 

14.  How  do  the  railroad  facilities  of  the  United  States  compare 

with  those  of  Europe? 


QUESTIONS  AND  TOPICS  587 

15.  Is  the  United  States  adequately  supplied  with  railroad  facili- 

ties? 

16.  Would  it  be  a  wise  policy  to  permit  complete  territorial  consoli- 

dation of  railroads? 

VII 

THE  RAILROAD  CORPORATION  AND   ITS   CHARTER 

1.  Define  a  corporation. 

2.  Distinguishing  features  of  a  corporation ;  a  partnership ;  a  lim- 

ited partnership;  a  joint-stock  association. 

3.  Organization  and  officers  of  the  corporation. 

4.  Distinction  between  the  private  and  the  public  corporation. 

5.  The  railroad  company  is  a  private  corporation  created  to  per- 

form a  service  of  a  public  nature — i.  e.,  the  railroad  company 
is  a  quasi-public  corporation. 

6.  How  does  Elliott  characterize  a  railroad  corporation? 

7.  The  services  and  charges  of  all  transportation  companies  are 

subject  to  public  control.    The  reasons  why  this  is  necessary. 

8.  The  legislative  power  of  the  States  over  railroads. 

9.  The  power  of  the  State  courts  over  railroad  charges. 

10.  The  legislative  power  of  the  United  States  over  railroads. 

11.  The  scope  of  the  power  of  the  Federal  courts  over  railroad 

charges. 

The  extension  of  the  powers  of  the  Federal  Government  re- 
sulting from  the  regulation  of  railroads. 

What  is  a  charter?  What  pov/ers  have  the  United  States  and 
the  States,  respectively,  to  charter  railroad  companies? 

Early  efforts  to  regulate  railroads  through  charter  provisions, 
and  results. 

What  is  "the  railway  question"?  What  accounts  for  the 
existence  of  this  question? 

Is  compulsory   Federal   incorporation   of    railroads    desirable? 

The  distribution  of  the  shares  of  railroad  corporations  in  the 
United  States? 

Account  for  the  fact  that  the  control  of  railroads  is  being 
steadily  concentrated  in  the  hands  of  a  small  number  of 
men,  while  the  holding  of  shares  is  being  more  widely  dis- 
tributed. 

When  is  a  railroad  insolvent? 

What  are  the  aims  sought  to  be  accomplished  by  placing  a 
railroad  in  the  hands  of  a  court? 


588  QUESTIONS  AND  TOPICS 

21.  What  are  "friendly  receiverships"? 

22.  Which  type  of  business  organization  is  most  suitable  for  con- 

ducting the  railroad  business?     Why? 

VIII 

RAILROAD  CAPITAL 

1.  Define  railroad  capital  and  state  why  bonds  are  included? 

2.  What  are  the  various  classes  of  railroad  bonds.    Define  each. 

3.  What  are  the  various  classes  of  railroad  stock?     Define  each. 

4.  What  is  the  extent  of  American  railroad  capital  at  present? 

5.  To    what    extent    are    railroad    securities    distributed    among 

the  investing  public? 

6.  How  does  the  capitalization  of  railroads  in  the  United  States 

compare  with  that  of  British  railroads?    Why? 

7.  What  is  "watered  stock"? 

8.  What  are  the  motives  for  stock  watering? 

9.  What  are  the  methods  of  stock  watering? 

10.  What  is  the  work  of  the  railroad  promoter? 

11.  What  is  the  work  of  the  security  "underwriter"? 

12.  What  are  the  objections  to  stock  watering? 

13.  Discuss  the  various  views  as  to  the  proper  basis  for  railroad 

capitalization. 

14.  How    is    railroad    capitalization    regulated    in    Massachusetts, 

New  York,  and  Pennsylvania? 

15.  What  ought  to   be   the   policy   of   the   States   as   regards    the 

regulation  of  the  issue  of  railroad  bonds  and  stock? 

16.  The  report  of  the  Hadley  Commission  upon  Federal  regula- 

tion of  railroad  securities. 

17.  Federal  regulation  of  railroad  capitalization. 

18.  Give  an  account  of  the  financial  history  of  some  railroad. 

IX 
EARNINGS,  EXPENSES  AND  DIVIDENDS 

1.  What  are  the  railroad  company's  sources  of  revenues? 

2.  What  share  of  total  revenue  is  derived   from  passenger  serv- 

ice?    From  freight  service? 

3.  What  are  the  principal  classes  of  operating  expenses? 

4.  Show  what  calculations  must  be  made  to  ascertain  the  net  in- 

come of  a  railroad. 


QUESTIONS  AND  TOPICS  589 

5.  Income    statement    of    the    railroads    considered    as    a    single 

system. 

6.  The    ratio    of    operating    expenses    to    income    from    operation, 

or  the  operating  ratio.     Its  significance. 

7.  Why  do  a  third  of  American  railway  stocks  yield  no  dividends? 

8.  Compare    and    explain    the    curves    of    fluctuations    in    freight 

revenue  and  operating  expenses.  (Chart.)  Also  the  curves 
of  gross  earnings  from  operation  and  net  income  available 
for  dividends. 

9.  Growth  in  freight  train  load  since   1898. 

10.  Growth  in  volume  of  traffic  during  same  period. 

11.  Freight  rates  since  1898. 

12.  Effect  on  the  prosperity  of  railroads  of  increased  efficiency  in 

operation,  of  growth  of  traffic,  and  maintenance  of  rates 
and  fares. 

13.  Recent  relationship  between   gross  earnings,  expenses   and  net 

income. 

14.  Read  the  income  statement  of  a  particular  railroad.     What  is 

the  operating  ratio  of  the  road? 


THE     FREIGHT     SERVICE— FREIGHT     CLASSIFICATION 

1.  Why    is    the    freight    service    of    greater    economic    and    social 

importance  than   the  passenger   service? 

2.  Statistics  of  freight  service  for  year  : 

a.  Total  tons  reported  . 

b.  Less  duplications  . 

c.  Ton-mileage  . 

d.  Number  of  freight  cars . 


e.     Freight  and  switching  locomotives 
3.     Character  of  freight  traffic  for  year 


a.  Products  of  agriculture  per   cent. 

b.  Products  of  animals  per  cent. 

c.  Products  of  mines  per  cent. 

d.  Products  of  forests  per  cent. 

e.  Manufactures  per  cent. 

f.  Merchandise  per   cent. 

g.  Miscellaneous  per  cent. 


590  QUESTIONS  AND  TOPICS 

4.  What   is   meant   by    "freight   classification"?     Why    is    it   nec- 

essary ? 

5.  Discuss  the  origin  and  development  of  classifications. 

6.  Name   the   three   leading    freight   classifications   of   the    United 

States  and  indicate  the  territory  in  which  each  is  used. 

7.  The  minor  classifications. 

8.  The  consolidated  classification. 

9.  Why   is   the  number   of   "ratings"   larger   than   the   number  of 

items  ? 

10.  Why    do    goods    shipped    in    carload    quantities    receive    lower 

ratings    than    when    shipped    in    less-than-carload    quantities? 

11.  What  is  meant  by  "carload  minimum"?     What  is  the  general 

carload  minimum  in  each  of  the  great  classification  districts? 

12.  Who  makes  the  freight  classifications? 

13.  What  are  some  of  the  factors  which  determine  the  classification 

of  an  article? 

14.  What  is  a  "commodity  tariff"? 

15.  What  is  meant  by  "uniform  classification"?     Discuss  the  work 

of  the  uniform  classification  committee. 

16.  The   railroads  of   Great   Britain   have  a  uniform  classification. 

Why  has  it  been  impossible  to  secure  uniform  classification 
in  the  United   States? 

17.  Distinguish  between  "local"  and  "interline"  freight. 

18.  Distinguish  between  "class  traffic"  and  "commodity  traffic." 

19.  How  does  a  freight  agent  ascertain  the  rate  for  a  particular 

shipment  of  traffic? 


XI 
THE    FREIGHT    SERVICE— BUSINESS    ORGANIZATION 

1.  Freight  shipping  papers : 

a.  Bills    of    lading:    straight,    order,    export,    live    stock 

contract. 

b.  Waybills :  local,  interline,  card. 

c.  Arrival  notice,  delivery  receipt,  freight  bill. 

2.  What  is  the  extent  of  a  railroad  company's  liability  for  lost  or 

damaged  freight? 

3.  Describe  the  system  of  "unit  billing." 

4.  Describe  in  detail  how  a   freight  shipment  is  cared   for   from 

shipper  to  consignee. 


QUESTIONS  AND  TOPICS  591 

5.  What  is  "fast  freight"? 

6.  Demurrage,  track  storage  charges,   reciprocal  demurrage. 

7.  Give  an  account  of  the  origin  and  development  of  "fast  freight 

lines." 

8.  Describe  the  present  methods  of  handling  through  freight. 

9.  Upon   what    basis    does   a    railroad    company   pay    for   the   use 

of  cars  belonging  to  another  company? 

10.  Describe  the  work  of  the  car  record  office. 

11.  How    do    American    railroad    companies    settle    their    accounts 

with    one    another?     What    system   is    employed   by    British 
railroads  ? 

12.  Private  cars   and  car  lines :   origin,   development,   and   present 

services. 

13.  What  have  been  the  chief  objections  to  private  car  lines? 

14.  Why  is  it  necessary  for  railroads  to  charge  demurrage? 

15.  Describe  the  operation  of  a  clearing  house  for  banks. 

16.  What  would  be  the  advantages  of  a  railroad  clearing  house? 


XII 

THE  PASSENGER  SERVICE 

I.     Statistics  of  passenger  traffic  for  year  

a.  Number  of  passengers  carried  . 

b.  Passenger  miles  . 


c.  Receipts  per  passenger  per  mile  — 

d.  Passenger  revenue  per  train  mile 

e.  Freight  revenue  per  train  mile  — 


f.  Average  length  of  passenger  journey  . 

g.  Average  number   of   passengers  per   train  . 

2.  What   are   the  leading   differences   between   the    passenger   and 

freight  services? 

3.  How  do  American  railways  compare  with  European   railways 

as  to  frequency  of  travel? 

4.  How    are    the    passenger    services    classified    in    England    and 

Germany?     To  what  extent  are  the  various  classes  used? 

5.  Classification  in  the  United  States :  Pullman  service,  first-class, 

and    irregular    services,    such    as    the   excursion,    immigrant, 
colonist  and  second-class  services. 

6.  Describe  the  railway  immigrant  service. 


592  QUESTIONS  AND  TOPICS 

7.  What    are    the    relations    between   the    Pullman    Company    and 

the  railroads? 

8.  Why  do  most  railroads  rent  instead  of  own  their  sleeping  and 

parlor  cars? 

9.  What  are  the  leading  types  of  passenger  tickets? 

10.  Outline  the  method  of  handling  baggage  in  the  United  States. 

11.  How  is  baggage  handled  in  England  and  continental  Europe? 

12.  What    are    the    chief    methods    of    developing    the    passenger 

business? 

13.  What  advantage  has  the  electric  over  the  steam  railway? 

14.  Describe  some  recent  additions  to  the  conveniences  of  Ameri- 

can passenger  service  with  which  you  are  familiar. 

15.  What  is  the  volume   of  the   passenger   traffic  of  some  of  the 

leading  railroads  of  the  United  States? 


XIII 
THE    EXPRESS    SERVICE    OF    THE    RAILROADS 

1.  What  traffic  is  shipped  by  express? 

2.  General  relation  of  express  and  freight  traffic. 

3.  History  of  express  business. 

4.  History  of  the  American  Railway  Express  Company. 

5.  Classification  of  express  traffic. 

6.  Express  rates. 

7.  Business  organization  of  the  express  company. 

8.  Express  shipping  papers. 

9.  Volume  of  express  traffic. 

10.  Contractual   relations  between   the  American   Railway   Express 

Company  and  the  railroads. 

11.  Government  regulation  of  express  companies. 

12.  Compare  the  express  service  with  the  parcel  post  service. 

13.  Should    the    railroads    develop    their    fast    freight    services    and 

collect  and  distribute  parcels  at  city  terminals? 

XIV 
THE  MAIL  SERVICE  OF  THE  RAILROADS 

1.  How  is  mail  matter  classified  in  the  United  States? 

2.  What  are  "star  routes,"  mail  messenger  routes? 


QUESTIONS  AND  TOPICS  593 

3.  Mail  routes  in  the  United  States  in  : 

Number   Mileage 

a.  Railroad 

b.  Steamboat     

c.  Star     

4.  Describe  the  parcel  post  rate  system. 

5.  Describe   the    introduction    and    present   use    of    "railway    post- 

office  cars." 

6.  What  is  the  "fast  mail  service"? 

7.  Which  class  of  mail  contributes  the  greatest  part  of  the  total 

weight    of    mail    carried?      Which    class    yields    the    most 
revenue  ? 

8.  What  are   the   mail   services   performed   by   the   railroads   and 

required  by  the  Post  Office  Department? 

9.  How  are  the  railroads  paid  for  their  mail  services? 

10.  How  is  the  rate  of  pay  determined? 

11.  Reductions  in  mail  pay  in  1906  and  1907.     Increase  for  parcel 

post  service  in  1913. 

12.  Postal  revenues  and  expenditures  for  the  year  : 

a.  Receipts,  $ . 

b.  Expenditures,   $ . 

13.  Total  railway  mail  pay  for  the  year  ,  $ . 

14.  How  has   the  rate  of   increase   in   railway  mail   pay  compared 

with  the  rate  of  increase  of  other  post  office  expenses? 

15.  What  have  been  the  chief  causes  of  postal  deficits? 

16.  Is  the  present  system  of  railway  mail  pay  an  equitable  one? 

17.  Give  a  summary  of  the  controversy  over  railway  mail  pay. 


XV 

THE  ORGANIZATION   OF   THE   SERVICE 

The   railroad   company's   corporate   and   its    special   transporta- 
tion organization. 
The  duties  and  place  in  the  company's  organization  of : 

a.  The  secretary's  department. 

b.  The  legal  department. 

c.  The   financial  department. 

d.  The  accounting  department. 

e.  The  operating  department. 


594  QUESTIONS  AND  TOPICS 

1.  Maintenance  of  way. 

2.  Machinery. 

3.  Transportation. 

f.  The  traffic  department. 

Freight — through,   local. 
Passenger. 

g.  Purchasing,   real  estate,   insurance  and   relief  depart- 

ments. 

3.  General  organization  of  the  Illinois  Central  Railroad. 

4.  General  organization  of  the   Pennsylvania  Railroad. 

5.  Divisional    and    departmental    types    of    organization    of    the 

operating  department. 

6.  The  organization  of  a  division. 

7.  Describe   the   organization   of   a   railroad   with   which  you   are 

familiar. 

8.  Name  the  presidents  of  some  of  the  leading  American  railroads. 


XVI 

THE  ACCOUNTS  AND  STATISTICS  OF  THE  RAILROAD 

SERVICE 

1.  Outline    the   organization   of   the    accounting    department   of   a 

railroad. 

2.  From  what  sources  are  the  accounts  regarding  traffic,  receipts, 

and  expenditures  compiled? 

3.  From  what  sources  are  those  of  train,  car  and  locomotive  per- 

formance obtained? 

4.  Outline  the  contents  of  a  railroad  report. 

5.  Advantages  of  uniform  accounting. 

6.  What  are  the  leading  functions  of  the  comptroller? 

7.  What  are  the  leading  functions  of  the  auditor  of  merchandise 

traffic  and  the  auditor  of  coal  traffic? 

8.  What   are   the   leading    functions   of   the   auditor   of   passenger 

traffic? 

9.  What   are    the   leading    functions    of   the   auditor    of   disburse- 

ments? 

10.  What  are  the  leading  functions  of  the  auditor  of  miscellaneous 

receipts  ? 

11.  What  are  the  leading  sources  of  railroad  statistics? 


QUESTIONS  AND  TOPICS  595 

12.  What  are  the  leading  omissions  of  desirable  data  in  the  pres- 

ent  statistical   publications   concerning   commerce   and  trans- 
portation ? 

13.  Secure  a  railroad  report  of  recent  date  and  tabulate  the  most 

important  items  of  information  which  it  contains. 


XVII 

INTERRAILWAY  RELATIONS— RAILROAD  COMPETITION 
AND  AGREEMENTS  TO  MAINTAIN  RATES 

1.  The  public  nature  of  the  railroad  business. 

2.  Railroad  cooperation  is  necessary,  and  competition  is  unavoid- 

able. 

3.  The  growth  in  the  length  of  the  railway  systems  from  1850  to 

1890. 

4.  Railroad  consolidation  and  confederation  after  1890. 

5.  Character  of  through  passenger  and  freight  service  in  1850. 

6.  The    establishment    of    express    companies,    fast    freight    lines, 

Pullman    services    and    private    car    lines    to    provide    better 
through  traffic  services. 

7.  Railroad  competition  in  the  fifties,  in  1869,  and  1874. 

8.  The  differential  rates  to  the  north  Atlantic  ports. 

9.  Early  railroad  competition  in  the  middle  West  and  South. 

10.  The  nature  and  economic  cause  of  railroad  competition.     Ne- 

cessity  for  regulating  or  limiting  it. 

11.  The  agreements  railroad  companies  may  make  to  restrain  com- 

petition. 

12.  Early  rate  agreements  of  the  trunk  lines. 

13.  The  Saratoga  Conference  of  1874,  and  its  results. 

14.  Why  rate  agreements,  without  pooling,  were  a  failure. 


XVIII 

INTERRAILWAY    RELATIONS     {Continued)—  POOLS    AND 

TRAFFIC  ASSOCIATIONS 

1.  Define  railway  pools. 

2.  Explain  how  the  pooling  of  freight  and  the  pooling  of  earnings 

are  arranged. 


596  QUESTIONS  AND  TOPICS 

3.  Does  competition  continue  when  rival  railroads  pool  their  com- 

petitive traffic  or  earnings  therefrom? 

4.  What   is   the  distinction   between  a   railroad   traffic   association 

and  a  pool  ? 

5.  The  Chicago-Omaha  pool  of   1870. 

6.  The   Southern   Railway  and   Steamship   Association,   its  origin, 

territory    occupied,    plan    or    organization,    its    operation    in 
practice,  its  disruption. 

7.  The  anthracite  coal  pool,  1872,  and  thereafter. 

8.  The  live  stock  and  oil  "eveners,"  1875-1879. 

9.  The   formation  of  the  Trunk  Line  and  Central  Traffic  Asso- 

ciations   in    1877.     Territory   occupied   by   each.     The   west- 
bound trunk  line  pool. 

10.  The  Joint  Executive  Committee  of  the  Trunk  Line  and  Central 

Traffic    Associations.      The    three    tasks    it    existed    to    ac- 
complish. 

11.  What   was   the   adjustment   of    the   "seaboard    differentials"    in 

1879?     What  has  been  the  subsequent  history  of  these  rates? 

12.  What  were  the  effects  of  railway  pooling  from  1870  to   1887? 

13.  The   legal   status   of   pooling   before    1887.     The   provisions   of 

section  five  of  the  Interstate  Commerce  Act  of  1887. 

14.  The  effects   of  the  prohibition  of  pooling  upon  the   organiza- 

tion and  development  of  traffic  associations  from  1887  to  1897. 

15.  What  have  been  the  arguments  for  and  against  legalizing  pool- 


ing? 


XIX 


INTERRAILWAY  RELATIONS  (Concluded)—  THE  PRESENT 

SITUATION 

History  of  the  Joint  Traffic  Association.  The  two  grounds  on 
which  it  was  held  to  be  illegal. 

Decision  of  the  U.  S.  Supreme  Court  in  the  Trans-Missouri 
Freight  Association  case. 

Legal  status  of  rate  agreements  before  and  after  this  decision. 
Effect  of  decision  upon  the  traffic  association. 

Necessity  for  concerted  action  among  carriers  making  com- 
petitive rates. 

Existing  railway  traffic  associations.  The  four  classes.  Name 
and  give  the  territory  of  the  leading  associations  of  the 
first  class. 


QUESTIONS  AND  TOPICS  597 

6.  The  organization  of  the   Central   Freight   Association. 

7.  Informal  rate  agreements. 

8.  Reasons    accounting    for    the    rapid    consolidation    of    railroads 

after  1898. 

9.  Four  methods  by  which  consolidation  is  brought  about. 

10.     The    meaning   of    "community   of    interest."      How    may    it   be 

established  ? 
11.'  The  legislation  of  pooling  in  1920. 
\2.     The  present  attitude  of  the  law  toward  railroad  consolidation, 

XX 

MONOPOLY    AND    COMPETITION    IN    THE    RAILROAD 

SERVICE 

1.  What  is  meant  by  monopoly? 

2.  Is  the  railroad  business  a  complete  monopoly? 

3.  What  are   the   monopolistic   features   of  the  railroad  business? 

4.  What  are  the  two  forms  of  railroad  cooperation?     What  is  the 

attitude  of  the  law  toward  each? 

5.  What  are  the  competitive  features  of  the  railroad  business? 

6.  Industrial  and  commercial  competition  and  rate  making. 

7.  Water  competition  and  rate  making. 

8.  Interrailway  competition  and  rate  making. 

9.  Fixing  rates  at  "what  the  traffic  will  bear." 

10.  Influence   of   competitive  and   monopolistic    factors   on   passen- 

ger fares. 

11.  Social  considerations  in  rate  making. 

12.  Is   a  railroad  company  ever  justified  in  charging  more   for  a 

short  than  for  a  long  haul  over  the  same  line  and  in  the 
same  direction,  the  shorter  distance  being  included  within 
the  longer?     Reasons. 

13.  What  has  been  the  influence  of  the  competition  of  electric  rail- 

way lines  on  the  rates  and  fares  of  steam  railroads? 

XXI 
THEORY  OF  RATES  AND  FARES 

1.    Cost  of  service  as  a  factor  in  rate  making: 

a.  General  application. 

b.  Application   to  particular  commodities. 


598  QUESTIONS  AND  TOPICS 

c.  Show  that  it  receives  practical  consideration. 

d.  Can  you  give  an  instance  in  which  a  railroad  would 

be  justified  in  charging  more  for  a  particular  serv- 
ice than  for  a  similar  service  which  it  costs  more 
to  perform? 

2.  Value  of  service  as  a  factor  in  rate  making ;  meaning  of  the 

term ;  its  influence  in  rate  making ;  criticism. 

3.  Value  of  commodity  as  a   factor  in  rate  making.     Its  use  in 

practice. 

4.  Capitalization  as  a  factor  in  rate  making. 

5.  Government  regulation  as  a  factor  in  rate  making. 

6.  The  general  rate  policy  of  American  railroads. 

7.  The  passenger   fare  policy  of  American  railroads. 

8.  Influence   of  theoretical  considerations   in   the  making   of   pas- 

senger fares. 

9.  What  is  meant  by  the  socialization  of  rates  and  fares? 

10.  Why  is  the  study  of  theories  of  rates  and  fares  of  importance? 

11.  Can  you   cite   instances    where   theories   have  been   given   con- 

sideration  in  practice? 

XXII 
RATE  MAKING  IN  PRACTICE 

1.  The  machinery  of   freight  rate  making: 

a.  Who  makes  freight  rates? 

b.  Higher  supervisory  officials. 

c.  Sources  of   information   of   rate   making  officials. 

d.  Freight   traffic   associations. 

2.  Classification  the  first  step  in  rate  making. 

3.  What  forces  govern  the  decisions  of  a  traffic  official  in  fixing 

rates? 

4.  Why   does   rate  making   in  the  United   States   present  difficult 

problems? 

5.  The  eastern  trunk  line  rate  system. 

6.  Rates  in  the  Southern  territory. 

7.  Rates  in  the  West  and  Southwest. 

8.  Transcontinental  rates. 

9.  Import  and  export  rates. 

10.  The  machinery  of  fare  making: 

a.    Who  makes  fares? 


QUESTIONS  AND  TOPICS  599 

b.  Higher  supervisory  officials. 

c.  Sources  of  information. 

d.  Passenger   traffic   associations. 

ii.     How  does  the  problem  of  fixing  passenger   fares  differ   from 
that  of  making   freight  rates  ? 

12.  How  have  the  rate  policies  of  railroads  in  the  United  States 

differed    from    the    policies    of    the    railroads    in    continental 
Europe  ? 

13.  Have    social    considerations    affected    in   any    way    the   charges 

on  American  railroads? 


XXIII 

THE  RAILROADS  AND  THE   STATE.     REGULATION   IN 
THE   UNITED   KINGDOM   AND   GERMANY 

1.  The  twofold  relation  of  the  state  to  the  railroads. 

2.  Why  is  some   form  of  government  control  of   railroads  nec- 

essary? 

3.  What  four  forms  may  the  relation  of  the  state  to  the  railroads 

take  in  the  matter  of  regulation  and  control? 

4.  How  may  the  absence  of  government  aid  to  railroads  in  the 

United  Kingdom  be  explained? 

5.  What   forms  of  railway  consolidation  have  been  employed  in 

Great  Britain? 

6.  What  has  been  the  general  attitude  of  the  British  Government 

toward  railroad  consolidation? 

7.  What  has  been  the  attitude  of  the  British  Government  toward 

agreements  entered  into  by  the  railroads  for  the  purpose  of 
controlling  competition? 

8.  What  has  been  the  general  plan  of  rate  regulation  followed  by 

the  British  Government? 

9.  Maximum  tolls  fixed  by  charters. 

10.  Legislation  before  1854. 

11.  The  Act  of  1854  and  its  results. 

12.  The  Act  of  1873  and  its  results. 

13.  The  Report  of  the  Select  Committee  of  1881-1882. 

14.  The  Cheap  Trains  Act  of  1883. 

15.  The  Railway  and  Canal  Traffic  Act  of  1888: 

a.  Organization  of  the  Commission. 

b.  Powers  of  Commission. 


GOO  QUESTIONS  AND  TOPICS 

c.  General  provisions  of  the  law. 

d.  The  "conciliation  clause." 

e.  Provisions    for   readjustment  of  rates, 
.o.     The  maximum  rate  laws  of   1891-1892. 

17.  The   Railway  and  Canal   Traffic  Act  of  1894. 

18.  The  law  of  1913. 

19.  British  railways  during  the  World  War. 

20.  The  Ministry  of  Transport  Act  of  1919. 

21.  Probable  nature  of  the  future  British  railway  policy. 

22.  The  reasons  for  government  aid  to  early  railroads  in  Germany. 

23.  Influences  which  brought  about  the  nationalization  of  railroads 

in  Prussia. 

24.  What  was  the  railway  policy  most  favored  by  Bismarck?    Why 

was  it  not  carried  out? 

25.  What  powers  with  respect  to  the  German  railways  were  pos- 

sessed by  the  Imperial  Government? 

26.  Organization  and  management  of  Prussian  railways : 

a.  Department  of  Public  Works. 

b.  21   operating  Directories. 

■27.    Rate  making  on   Prussian   railroads.     The  system  of  advisory 
councils. 

Other  German   railway  associations. 

Financial  results  of  state  management  in  Prussia. 

Results  with  respect  to  facilities,  services  and  rates. 

German  railways  during  the  World  War. 

The  present  German  railway  policy. 

What  accounts  for  the  variations  in  the  railway  policies  of  dif- 
ferent nations? 
34.    Why  is  public  ownership  displacing  private  control  of  railroads? 


28 
29 
30 

3i 
32 
33 


XXIV 

PUBLIC   AID    TO    RAILROAD    CONSTRUCTION    IN    THE 

UNITED  STATES 

J.   State  Aid  to  Railroads 

1.  Origin  of  the  policy;  influence  of  the  distribution  of  the  Fed- 

eral surplus  in  1837;  the  early  aid  consisted  of   State  pur- 
chases of  stocks  and  bonds. 

2.  Amount  of  aid  given  by  the  nineteen  States  that  gave  assistance. 

3.  Small  results  accomplished ;  reasons  why  the  States  failed. 


QUESTIONS  AND  TOPICS  601 

2.    National  Aid 

4.  Federal  surveys;  policy  regarding  tariff  on  railroad  iron;   free 

rights  of  way. 

5.  Land  grants  and  land-grant  policy,  1850- 1862. 

6.  Form  of  grant — the  Illinois  Central  grant  of  1850. 

7.  Land  grants  and  land-grant  policy,   1862-1871. 

8.  The  land  grants  to  aid  the  Union-Central  Pacific  line. 

9.  The  Credit  Mobilier  scandal,  and  the  opposition  to  land  grants 

after  1872. 
ro.    The  forfeiture  act  of  1890. 

11.  The  Federal  loans  to  the  Union-Central  Pacific  companies,  and 

the  final  repayment  of  the  debts  by  the  companies. 

12.  Purpose  and  results  of  the  Federal  land  grants  to  the  railroads. 

3.   Local  Aid 

13.  Amount  of  county  and  city  bonds  issued  to  aid  railroads. 

14.  Methods  employed  by  the  railroads  in  securing  the  aid  of  local 

governments. 

15.  Individual  aid — methods  by  which  investors  were  made  to  lose 

their  investments. 

16.  Influence  which  government  aid  and  methods  of  railway  pro- 

motion had  upon  public  sentiment  for  government  regulation. 

17.  Has  the  public  been  adequately  recompensed  for  the  aid  given 

to  railroads? 

18.  Was  the  land-grant  policy  of  the  Federal  Government  a  wise 

policy  ? 

XXV 

REGULATION     OF     RAILROADS     BY     THE     AMERICAN 
STATE  GOVERNMENTS— THE  STATE  COMMISSIONS 

1.  Constitutional    limitations    of    the    State's    power    to    regulate 

railways. 

2.  Legislative  as  contrasted  with  judicial   functions  in  regulation. 

3.  Early  regulation:  Laisses  faire   (1840-1870). 

a.  State  aid. 

b.  Charter   regulation. 

c.  Early  rate  laws. 

d.  Early  commissions. 

4.  Granger  legislation  (1870  1880). 


602  QUESTIONS  AND  TOPICS 

5.  Importance  of  Supreme  Court  decisions  in  granger  cases. 

6.  Gradual  development  of  State  regulation   (1880-1902). 

7.  Great  increase  in  State  regulation    (1903  to  the  present). 

8.  Types  of  State  commissions : 

a.  Mandatory   railroad  commissions. 

b.  Public  utilities   or  public  service  commissions. 

c.  Corporation  commissions. 

9.  Various  degrees  of  rate  making  power : 

a.  Advisory  power. 

b.  Revisory    power    upon    complaint. 

c.  Revisory  power  upon  initiative. 

d.  Power  to  make  schedule  of  rates. 

10.  Powers  and  organization  of  the  Public  Utilities  Commission  of 

Illinois. 

11.  Powers  and  organization  of  the  Public  Service  Commission  of 

Pennsylvania. 

12.  Powers   and   organization   of   the    Public    Service   Commissions 

of  New  York. 

13.  Powers  and  organization  of  the  State  Corporation  Commission 

of  New  Mexico. 

14.  Tendencies   in  commission  legislation. 

15.  State  regulation  by  statute: 

a.  Maximum  rate  laws. 

b.  Anti-rebating   and   discrimination   laws. 
C.     Laws  requiring  notice  of  rate  changes. 

d.  Laws  requiring  that  rates  be  published. 

e.  Passenger    fare   laws. 

f.  Mileage  book  laws. 

g.  Antiscalping   laws. 
h.  Antipass  laws. 

i.     Antitrust  laws. 
j.     Car   service  laws, 
k.     Laws  as  to  stations  and  terminals. 
1.     Train  service  laws, 
m.     Regulation  of  live  stock  traffic, 
n.     Laws   regulating   private  railway  sidings, 
o.     Jim   Crow  laws, 
p.     Public   safety   statutes, 
q.     Train  crew  statutes. 

16.  Criticisms  of   State  regulation. 

17.  The  conflict  of  State  and  Federal  authority. 


QUESTIONS  AND  TOPICS  603 

18.    The   Transportation   Act   of    1920   and   the   problem   of    State 
regulation. 


XXVI 

RAILROAD    REGULATION    BY   THE   FEDERAL   GOVERN- 
MENT—THE ACT  OF  1887 

1.  The  agitation  for  Federal  regulation  of  railroads   (1822-1887)  : 

a.  The    demand    for    cheaper    rail    rates    in    the    early 

seventies. 

b.  Influence  of  the  granger  legislation  of  the  States. 

c.  The  Windom  Committee  and  its  report  in  1874. 

d.  The  McCreary  bill  of   1874. 

e.  The  Reagan  bill  of  1878. 

f.  The  Cullom  Committee  and  its  report,  1886. 

g.  Decision  of  the  U.   S.  Supreme  Court  in  Wabash  v. 

Illinois  in   1886. 
h.    Enactment  of  the  Interstate  Commerce  law  in  1887. 

2.  The  operation  of  the  Act  of  1887 : 

a.  Orders  of  Commission  not  binding. 

b.  Admission  of  new  evidence  by  courts. 

c.  The    lack    of    power    of    the    Commission    to    compel 

witnesses  to  testify,  1890-1896. 

d.  The    Commission    did    not    possess    the   power   to    fix 

maximum   rates. 

e.  The    Commission    could    not    effectually    prevent    per- 

sonal discrimination. 

f.  The  interpretation  of  the  long  and  short  haul  clause. 

g.  Discriminations  in  import  rates. 

3.  The  beneficial  results  of  the  law. 

4.  Five  needed  changes  in  the  law,  1900. 


XXVII 
FEDERAL    LEGISLATION    FROM    1903    TO    1914 

The  Elkins  Act  of  1903 : 

a.  Corporations  as  well  as  agents  liable. 

b.  Receiver  of  rebate  guilty  as  well  as  giver. 

c.  Only  published  rates  legal. 


604  QUESTIONS  AND  TOPICS 

d.  Penalty  of   fine   for  departure   from   published   rates. 

Penalty  of  imprisonment  restored  in   1906. 

e.  Federal    courts    authorized    to    order    the    observance 

of  published  rates. 

2.  Expediting  Act,  1903. 

3.  Hepburn  amendment  to  Interstate  Commerce  Act,  1906.    Lead- 

ing changes  in  law : 

a.  Law  made  applicable  to  other  transportation  agencies. 

b.  Rates  not  to  be  changed  except  on  30  days'  notice. 

c.  Free  transportation  regulated. 

d.  Interstate    Commerce   Commission   enlarged. 

e.  Commission  given  rate  making  power. 

f.  Orders  of  Commission  made  binding  unless  set  asiiL 

by  courts. 

g.  Commission   authorized    to    prescribe    system    of    un! 
form  accounting. 

4.  Judicial  review  of  the  Commission's  orders. 

5.  The  Mann-Elkins  Act  of  1910: 

a.  Commission  given  power  to  suspend  proposed  changes 

in  rates. 

b.  Long  and  short  haul  clause  made  effective. 

c.  The  Commerce  Court. 

d.  Minor  features  of  law. 

6.  Amendments  to  Interstate  Commerce  Act  in   1912  and   1913. 

7.  Other  Federal  legislation  for  railway  regulation : 

a.  Sherman  Antitrust  Act  of  1890. 

b.  Clayton  Antitrust  Act  of   1914. 

c.  Safety  appliance  laws. 

d.  Erdman    Act    of    1898;    amended    by    Newlands    Act 

of  1913. 

8.  Criticisms  of  the  system  of  regulation  in  effect  in  1914. 

XXVIII 

NEW     RAILROAD     PROBLEMS:     GOVERNMENT     OPER- 
ATION 

1.  Financial  condition  of  railroads,  1910-1917. 

2.  The  Five  Per  Cent  Case  of  1913. 

3.  The  Adamson  Act. 

4.  Operating   problems   during   the   early  years   of   the   European 

War. 


QUESTIONS  AND  TOPICS  605 

5.  The  Council  of  National  Defense. 

6.  The  Railroads'  War  Board. 

7.  The  Advanced  Rate  Case  of   1917. 

8.  Special   Report  of   the   Interstate   Commerce   Commission,   De- 

cember 1.  1917. 

9.  The  railroads  taken  over  by  the  Government. 

10.  Organization  of  the  U.   S.  Railroad  Administration. 

11.  The  Federal  Control  Act. 

\2.     Operating  results  during  Federal  control. 

13.  Financial  results  of  Federal  control. 

14.  The  need  of  a  new  railroad  policy. 


XXIX 
THE    TRANSPORTATION    ACT    OF    1920 

1.  The  "plans"  for  railroad  regulation. 

2.  The  attitude   of    Congress   and    the  public   toward   government 

ownership. 

3.  The  railroad  problem  in  Congress. 

4.  The  Transportation  Act  passed. 

5.  Financial   provisions   of   the   Transportation   Act. 

6.  Labor  provisions  of  the  Transportation  Act. 

7.  Amendments   to  the   Interstate   Commerce   Act. 

a.  The   rule  of   rate  making. 

b.  The   commission   authorized   to   name  minimum   rates. 

c.  Federal  control  of  railway  capitalization. 

d.  Federal  control  of  intrastate  rates. 

e.  Legalization  of  pooling. 

f.  Modification  of  the  "long  and  short  haul"  clause. 

g.  Control    of    car    service    and    terminals    by    the    com- 

mission, 
h.     Plan   for  railway  consolidation. 

8.  The  resumption  of  private  operation. 

9.  The  advance  of  wages  and  rates. 

10.  The  business  depression  and  its  effect  on  the  railroads. 

11.  Work  of  the  Railroad  Labor  Board. 

12.  The  financial  condition   of   the   railroads. 

13.  The    main    provisions    of    the    Interstate    Commerce    Act    as 

amended  to  date : 

a.     Act  applies  to  railroads,  pipe  line  companies,  telegraph, 


606  QUESTIONS   AND   TOPICS 

telephone  and  cable  companies,  express  companies 
and  sleeping  car  companies,  and  to  interstate  and 
foreign  traffic  not  carried  entirely  by  water. 

b.  Charges  must  be  reasonable,  absolutely  and  relatively, 
as  between  persons,  places  and  commodities. 
Passes  prohibited  with  certain  exceptions. 

C.  Carrier  must  not  be  both  producer  and  carrier  of 
commodities,  except  timber  and  manufactured  prod- 
ucts thereof. 

d.  Carriers    must    construct    switch    connections    where 

reasonably  practicable. 

e.  Carrier  must  not  charge  more  for  a  short  haul  than 

for  a  long  haul  over  the  same  line  in  the  same 
direction,  the  shorter  distance  being  included  within 
the  larger,  unless  permitted  to  do  so  by  the  Inter- 
state Commerce   Commission. 

f.  Pools   may    be    established   and    maintained    with   the 

consent  and  under  the  supervision  of  the  Interstate 
Commerce   Commission. 

g.  Railroads  not  to  own  competing  water  carriers. 

h.  Schedules  of  rates  and  fares  must  be  published  and 
filed  with  the  Interstate  Commerce  Commission. 
Published  rates  to  be  strictly  observed. 

i.  Carrier  must  furnish  written  statement  of  rate  upon 
application. 

j.  Carriage  of  freight  must  be  treated  as  continuous 
unless   stoppage  is  in  good  faith. 

k.  Persons  claiming  to  be  damaged  by  carriers  subject 
to  Act  may  bring  suit  for  recovery  either  before 
the  Interstate  Commerce  Commission  or  in  a  Fed- 
eral Court. 

1.  Penalties  for  violation  of  the  Act— fines  and  im- 
prisonment. 

m.  Interstate  Commerce  Commission  created.  Eleven 
members,  term  of  office  seven  years,  salary  $12,000. 

n.  General  powers  and  duties  of  the  Interstate  Com- 
merce Commission : 

1.  To  execute  and  enforce  provisions  of   Act. 

2.  To  make    investigations   either   upon   complaint 

or  upon  its  own  initiative. 

3.  To  correct  rates  found  to  be  unreasonable. 


QUESTIONS  AND  TOPICS  607 

4.  To  suspend  proposed  rates  and  pass  upon  their 

reasonableness. 

5.  To  initiate  rates  and  keep  the  general  level  of 

rates  such  as  will  enable  the  carriers  to  earn 
a  fair  return  upon  the  value  of  their  property 
devoted  to  transportation. 

6.  To    revise    freight    classifications,    to    establish 

through   water    routes   and   joint   rates. 

7.  To  modify   state  rates  which  cause  discrimina- 

tions  against    interstate   commerce. 

8.  To  control  car  service. 

9.  To  require  a  carrier  to  permit  the  use  of  its 

terminals  by  another  carrier. 

10.  To    issue    appropriate    orders    and   award    dam- 

ages. Its  orders  binding  unless  set  aside  by 
Federal    courts. 

11.  To  make  a  valuation  of  railroads. 

12.  To   control    railroad   capitalization. 

13.  To  prepare  a  plan  for  the  consolidation  of  the 

railroads  into  a  limited  number  of  competi- 
tive systems. 

14.  To  permit  consolidations  which  are  in  harmony 

with  its  plan. 

15.  To  prescribe  and  enforce  a  uniform  system  of 

accounts. 

16.  To  require  annual  and  special   reports. 

17.  To  enforce   safety  appliance  laws. 

18.  To    compel    railroads    to    establish    connection 

with  ocean  lines. 

XXX 

THE    COURTS    AND    RAILROAD    REGULATION 

1.  The  courts  determine  the  meaning  and  scope  of  laws.     Illus- 

tration afforded  by  the   Supreme  Court's  application  of  the 
Antitrust  law  to  railroads. 

2.  Consequences  resulting  from  leaving  to  the  courts  the  enforce- 

ment of  the  orders  of  the  Interstate  Commerce  Commission 
under  the  Act  of  1887. 

3.  The  scope  of  the  equity  jurisdiction  of  the  courts   in  passing 

upon  railroad  rates. 


608  QUESTIONS  AND  TOPICS 

4.  Extension  of  "court  review"  of  rates  fixed  by  State  laws : 

a.  Position  taken  by  the  Supreme  Court  in  the  Granger 

decisions  in  1877.     Munn  v.  Illinois. 

b.  In  the  Mississippi   Rate  cases  in    1885.     "This  power 

to  regulate  is  not  a  power  to  destroy." 

c.  In  the  Minnesota  Railroad  and  Warehouse  case,  1890. 

d.  In  the  Nebraska  Maximum  Rate  case,    1898.     Smyth 

v.  Ames. 

e.  In  Ex  Parte    Young,  1908. 

5.  What  is  the  present  doctrine  of  "court  review"? 

6.  The  power  of  the  courts  to  enjoin  a  proposed  increase  in  rates. 

7.  The  power  of  the  Interstate  Commerce  Commission  to  suspend 

and  prevent  proposed  rate  advances. 

8.  Power    of    the    courts    to    enjoin    the    railways    from    charging 

unjustly  low  rates.     The  history  of  the  rate  war  between  the 
Seaboard  Air  Line  and  the  Southern  Railway  Company. 

9.  Court  injunctions  to  compel  railways  to  charge  their  published 

rates.     Elkins  Act  of  1903. 

10.  The  general  law  of  strikes. 

11.  The  exceptions   to  this  general   law  of  strikes   in  the  case  of 

railroad  employees. 

12.  What  is  a  "blanket  injunction"? 

13.  The  injunction  in  the  Ann  Arbor  strike,  1893. 

14.  Judge  Jenkins'  order  in  the  Northern  Pacific  and  Union  Pacific 

strikes,    1894. 

15.  The  history  of  the  Debs  strike,  1894. 

16.  Federal  regulation  of  the  use  of  the  injunction  in  labor  troubles. 

17.  What  is  the  purpose  of  a  railway  receivership? 

18.  Periods  of  railroad  insolvency,   1873,   1885,   1893,   1915. 

19.  Causes  of  railroad  insolvency  in  the  United  States. 

20.  "The  bane  of  friendly  receiverships." 

21.  What    changes    in    the    present    law   and    practices    of    railroad 

receiverships  have  been  advocated? 

XXXI 

THE   PROBLEM    OF   GOVERNMENT    REGULATION    AND 

GOVERNMENT     OWNERSHIP      IN      THE 

UNITED    STATES 

1.  The  twofold  nature  of  the  problem  of  government  regulation. 

2.  Why  has  the  problem  arisen? 


QUESTIONS  AND  TOPICS  609 

3.  How  may  the  problem  be  dealt  with? 

4.  Government     ownership     a     question     of     expediency,     not     of 

principle. 

5.  Why  is  the  railway  experience  of  one  country  not  a  safe  guide 

of  action  in  another  country? 

6.  The  probable  effect  of  government  ownership  on  railroad  serv- 

ice in  the  United  States. 

7.  The  probable  effect  on  rates. 

8.  Effect  upon  politics  and  government. 

9.  The  results  of  regulation  in  the  United   States. 

10.  What  are  the  chief  features  of  the  present  problem  of  govern- 

ment regulation  in  the  United  States? 

11.  What   course    should   be   adopted    in    attempting   to    solve    this 

problem  ? 

12.  What  are  the  main  arguments  in  favor  of  government  owner- 

ship of   railroads;   the  main   arguments   against  government 
ownership  of  railroads? 


INDEX 


Accounting,  government  regulation  of, 
259. 

Accounting  department,  organization 
of,   250-51. 

Accounts,  need  for  accuracy  and 
uniformity  in,  258;  of  the  railroad 
service,   250-262;   usefulness  of,  250. 

Adams,  Alvin,  organizes  the  express 
company,    203. 

Adams    Express    Company,    203-204. 

Adamson    Act,    494. 

Advisory    Commission    appointed,    497. 

Air    brake,    64. 

Air   mail    service,    224. 

Alaskan   railroad,    407. 

American  railroad,  first  for  general 
public   use,    22;    origin   of,    13-23. 

American  railroad  net,  growth  of,  25- 
37. 

American  Railway  Association,  318; 
National  Industrial  Traffic  League 
and,   cooperation   of,   319. 

American  Railway  Express  Company, 
206;    internal    organization    of,    205. 

Ann   Arbor    strike,    549. 

Antitrust  law,  application  of,  to  rail- 
roads, 483;  traffic  associations,  a 
violation    of,    305. 

Army  Appropriation  Act,   496. 

Association  of  American  Railroad  Ac- 
counting  Officers,    influence  of,   260. 

Atlantic  ports  (north),  rivalry  of, 
279. 

Automatic   stops,    78. 

Baggage  service  in  European  countries, 
196;  in  the  United  States,   195. 

Baldwin  Locomotive  Works,  founding 
of,    47. 

Ballast,  45. 

Ballin,    Albert,    394. 

Baltimore  &  Ohio  Railroad,  beginning 
of,   22;    reaches   the   Ohio   River,   29. 

Basing   point   system   of   rates,    357. 

Bills    of    lading,    160. 

Bismarck,  influence  of,  regarding  the 
railway    policy    of    Germany,    393. 

Block    signals,    three    kinds    of,    77. 

Board  of  Mediation  and  Conciliation, 
485. 

Board  of  Railway  Wages  and  Work- 
ing   Conditions,    508. 

Board  of  Trade,  British,  powers  of 
regarding   railways,    377. 


Bonds,  classes  of  railway,  109;  prece- 
dence of  the  holder  of,  over  stock- 
holder,   110. 

British  Railway  Clearing  House,  func- 
tions  of,    176. 

British    Railways   Act   of    1921,    389. 

Buffalo,  connection  with,  by  railroad, 
22,    28. 

Camden  and  Amboy  Railroad,  char- 
tered,   23. 

Canal  building,  decline  of,  after  1840, 
19. 

Canal  routes,  early  survey  for,    15. 

Canals,  early,  17.  See  also  canals  by 
name. 

Capital,   railroad,    108-130. 

Capitalization,  bases  for,  121;  chart 
of,  1890-1918,  115;  comparison  of, 
with  other  industries,  35-37;  per 
mile  of  line  in  1918,  111;  proposed 
Federal  regulation  of,  128;  public 
regulation  of,  124;  state  laws  re- 
garding,   125;    total,    33,    110. 

Car    interchange,    174. 

Car    Service   Commission,   496. 

Carmack    Amendment,    471. 

Cars,  postofnce,  231;  records  of  mov- 
ing, 176;  sleeping,  63;  vestibule  of, 
63. 

Central  Freight  Association,  purposes 
of,    316,    317. 

Central    Pacific    Railroad,    30. 

Charleston  and  Hamburg  Railroad,  22. 

Charters,  British  railroad,  371,  375; 
foreign,  104,  403;  in  France,  403; 
inadequate  protection  to  public,  in, 
103;  limitations  of  rates  and  prof- 
its  in,   424. 

Chesapeake    and    Delaware    Canal,    19. 

Chesapeake   and   Ohio  Canal,    19. 

Chicago-Atlantic  traffic,  struggle  for, 
279-282. 

Chicago,   first  rail  connection  with,  28. 

Chicago    Omaha   pool,    291. 

Class   tariffs,    158. 

Classification,  committees,  work  of, 
151,  157;  express,  209,  210;  freight, 
how  determined,  153;  mail  matter, 
219;   passenger,    187;   uniform,    156. 

Clayton  Antitrust  Act,  regulation  of 
use  of   injunctions  in,   483. 

Commerce,    defined,   4. 

Commissions,    state,    types   of,    435. 


6n 


612 


INDEX 


Commodities      clause,      of      Interstate 

Commerce   Act,   451. 
Commodity   tariffs,    158. 
Community   of   interest,    309,    310. 
Competition,    railway,    and    agreements 
to  maintain    rates,   282;    and   monop- 
oly  in    the   railway   service,   321-333; 
early   in    Great    Britain,    372;    in    the 
West    and    South,    280,    281;     influ- 
ence  of,    upon    local   rates,    330;    na- 
ture  of,   274;    not   confined   to   junc- 
tion  points,    328;   of  two  kinds,  327; 
restraint    of,    a    necessity,    284;    the 
Troy  Case  of   1897,   462. 
Competition    of    markets,    329. 
Comptroller,  duties  of,   251. 
Consolidated   Classification,    152;    Com- 
mittee,   work   of,    151. 
Consolidation,    accompanied    by    an    in- 
crease   in    capitalization,    119;    begin- 
ning of,  28;   effect  of,  332;  in  Great 
Britain,    372;    methods    of,    308;    un- 
der  the   Transportation    Act,    93. 
Construction,    railroad,    in    the    United 
States,     1850-60,     26;     1860-70,     30; 
1870-90,    31;    after    1890,    32;    since 
1912,    33;    public    aid   to,   407-421. 
Cooperation,    attitude    of    law    towards, 
315;     in    rate    making,    354;    of    two 
kinds,    326. 
Cooperative  freight  lines,   173. 
Corporation,   defined,    97;   special   char- 
acteristics  of    railroad,    99. 
Corporation    Commissions,    435. 
Corporations,     insolvent,     106;    mileage 
of     railroads     owned     by,     in      1916, 
557;   of  two   general  kinds,   99;    size 
of    railroad,    104. 
Cost,   meanings   of   the   term,    336. 
County   aid    to   railroad    building,    418. 
Courts,    action    of   regarding    orders   of 
Interstate     Commerce     Commission, 
476;    attitude   of,    toward   rate   regu- 
lation,   537,    543;    early    rulings    of, 
regarding   Interstate   Commerce   Act, 
456;     no    authority    to    make     rates, 
536;    powers    of,    to   review    railroad 
legislation,     102;     the,    and     railroad 
regulation,    534-561. 
Credit    Mobilier,    financial    methods   of, 

118. 
Crossties,   timber  used   for,   44. 
Cullnm   report,    450. 
Cumberland     Road,      construction     of. 

15. 
Cummins,    Amendment    to    the    Inter- 
state  Commerce  Act,    164;    Bill,   514. 


Dartmouth    College    case,    432. 

Debs    strike,    551. 

Delaware   and    Hudson    Canal,    17. 

Delaware    and    Raritan    Canal,    18. 

Demurrage,     170. 

Departmental     type     of     organization, 

240. 
Differential     rates    to     North    Atlantic 

ports,    280. 


to 


of, 


Director    General    of    Railroads,    Wm. 
G.    McAdoo,    504. 

Discriminations,  abuses  of  local  in 
188/,  460;  demand  for  abolition  of 
unreasonable,  449;  Hepburn  amend- 
ment strengthens  law  against  477- 
in  import  rates,  463;  law  of  1910 
regarding,  478;  may  be  just  or 
unjust,  346;  prohibited  in  the 
Interstate  Commerce  Act,  451,  452 
458,  460;  provisions  of  Elkins  Act 
regarding,    467,    468. 

Dismal    Swamp    Canal,    16 

in^ll     ^3'     115;     payments     for 
Divisional    type    of    organization,    240. 

Eair899  %  1S°fi ,  nAmerican  railroads, 
1899-1918,  140;  expenses  and  di- 
vidends, 131-143;  relation  of 
business    conditions,     141. 

Electric     locomotive,     advantages 

Electrification       of      steam      railroads, 
Elkins    Act,    main    provisions    of,    467, 

Empire  Transportation  Co.,  func- 
tions   of,    172. 

England,  fares  in,  388;  first  railroad 
in,    22. 

Erdman    Act,    of    1898,    485. 

Erie    Canal,    construction   of,    18 

Esch    bill,    496,    514. 

European,  and  American  railroad 
mileage,  comparison  of,  33;  coun- 
tries, fares  in,  388,  400;  freight 
rates   in,    388,    400. 

Eveners,    295. 

Ex    parte    Young    case,    540. 

Expediting    Act,    468,    474. 

Express,  classification,  210;  compa- 
nies, contractual  relation  of,  with 
railroads,  208;  how  an  agent  ob- 
tains rate,  212;  internal  organiza- 
tions, 205;  leading  compan- ,  206; 
organization  of  American  Railwav 
Express  Co.,  206;  rates,  the  system 
of,  and  classification,  211,  212;  ship- 
ping  papers,    207;    statistics   of,   213. 

Express  service  of  the  railroads. 
201-216;  advantages  of,  214;  gen- 
eral character  of,  201;  origin  of, 
203;    parcel    post,    and    the,    213. 

Fares,  passenger,  comparison  of 
with  freight  rates,  182;  need  of 
a  theoretical  basis  for,  334;  prob- 
lem of  fixing,  compared 
freight    rate    problem,    361. 

Fares   and    rates,    theory   of,    334, 

Fast     freight     lines,     decline 
formation    of,    171. 

Fast    mail    trains,    225. 

Federal      Commission      of 
and    Conciliation,    485. 

Federal    employers'    liability 


of, 


with 

348. 
174; 


Mediation 
law,    485. 


INDEX 


613 


Federal  Government,  railroad  regu- 
lation   by   the,   448-466. 

Federal  regulation,  present  system 
of,  486;  the  greatest  obstacle  to 
adequate,  486.  See  also  Regula- 
tion   and    Government    regulation. 

Federal    managers    appointed,     505. 

Fink.    Albert,    296. 

Fixed    charges,     135. 

France,    railroads    of,    402-403. 

Franchises,    8. 

Freight,  classification  of,  149;  how 
an  agent  ascertains  rates  on,  158; 
through    and    local,     159. 

Freight  car,  capacity  of,  67;  many 
designs    of,    66;    steel,    68. 

Freight  service,  business  organiza- 
tion of,  160-180;  classification  of 
freight,     147-159. 

Freight    shipping    papers,    160. 

Freight  terminals,  classification  of 
cars  in,  75;  requisites  for,  72; 
transfer    freight    house,    76. 

Freight  traffic,  pool,  description  of, 
288;  United  States  statistics,  ad- 
ditional required,  267;  volume  of 
in     United    States.    148. 

Full    crew    laws,    441. 


Gallatin,    report    of,    to    Congress,    17. 

Germany,  post  war  organization, 
400;  railroad  policy  of,  early,  391; 
prewar  organization  of,  396;  rela- 
tion of  the  railways  to  the  states 
in,  392;  war  increases  of  rates,  400; 
war   organization    of,    396. 

Gladstone,    William    E.,    377. 

Gould    railroad    interests,    87. 

Government  aid  to  railroad  construc- 
tion   in    the    United    States,    407-421. 

Government  control  of  railways  in 
foreign    countries,    402-405. 

Government  operation,  489-511;  Army 
Appropriation  Act,  504;  board  of 
railroad  wages  and  working  condi- 
tions, 508;  Council  of  National  De- 
fense, 497;  Director  General,  Win, 
G.  McAdoo,  510;  Federal  managers, 
505;  organization,  railroad  adminis- 
tration, railroad  control  act,  506; 
preference  freight,  under  authority 
of  United  States  Shipping  Board, 
Navy,  Food  and  Fuel  Administra- 
tion, 508;  Railroads'  War  Board, 
498;  twenty-five  per  cent  rate  in- 
crease,   509;   Walker    D.   Hines,    510. 

Government  ownership,  a  question 
of  expediency,  565;  effect  of,  upon 
politics  and  government,  567;  in 
the  United  States,  an  unwise 
policy,  570;  of  railroads,  mileage 
of,  in  1912,  565;  probable  effect  of, 
in  United  States,  568;  probable  ef- 
fect of,  upon  rates,  569-570;  should 
the  United  States  adopt  a  policy  of, 
567;  socialization  of  rates  and  fares, 


possible  under,  571;  the  question  of, 
389. 

Government  ownership  and  govern- 
ment regulation  in  United  States, 
the     problem     of,     563-577. 

Government  regulation,  early  causes 
of  demand  for,  419;  need  for  con- 
structive policy  regarding,  575; 
success  of,  in  United  States,  574; 
two  methods  of,  564;  twofold 
problem  of,  563;  uniformity  de- 
sired   in,     442. 

Government  regulation  and  govern- 
ment ownership  in  United  States, 
the    problem    of,    563-577. 

Government  regulation  of  railroads 
in    the    United    Kingdom,    367-389. 

Granger  laws,  moditicaion  of,  433; 
opposed  by  the  railroads,  432; 
reasons  for,  430;  upheld  by  Su- 
^  preme   Court,   433. 

Granger   legislation,    537. 

Granger    lines,    87. 

Great  Britain,  effect  of  World  War 
upon  rates  and  fares,  387; 
methods  of  railroad  cooperation  in, 
372;  post  war  control,  Ministry 
of  Transport  Act,  1919,  387;  Rail- 
ways Act,  1921,  389;  regulation  of 
railway  combinations,  in,  374; 
summary  of  complaint  against 
railways  in,  380;  war  time  opera- 
tion,   385. 

Grouping  of  railroads,  by  ownership 
and    control,    88;    territorially,    85. 

Hadley  Commission,  report  by,  on 
railroad    securities,    127. 

Harnden,  William,  founder  of  ex- 
press   service,    203. 

Hepburn  amendment,  main  provi- 
sions   of,    471. 

Hepburn    Committee,    report    of,    297. 

Illinois,  law  of,  regarding  public 
utilities,    regulation,    437. 

Illinois  Central  Railroad,  organiza- 
tion   of,    242. 

Immigrant    clearing    house,    191. 

Immigrant     service,     191. 

Import    and    export    rates,    360. 

Import   rate   case,   463. 

Import  rates,  decision  of  Supreme 
Court    regarding,    463. 

Income   account,    252.  ' 

Industrial   agents,    work   of,    331. 

Industrial  Commission,  report  of, 
261. 

Injunctions,  against  secret  rebates, 
547;  compelling  railroad  employees 
to  work,  550;  in  labor  disputes, 
549;  regulation  of  use  of,  in 
Clayton  Antitrust  Act,  554;  to 
prevent  rate  wars,  545;  to  protect 
property    and    personal    rights,    546. 

Insolvency,  causes  of,  106,  558;  in- 
crease of,  beginning  in  1912,  559. 
See  also  Railway  receivership. 


614 


INDEX 


Insurance   department,    247. 

Interrailway  relations,  273-319;  pres- 
ent and  prospective,  310;  present 
situation,    304-319. 

Interrailway  rivalry,  its  beginnings, 
278. 

Interstate  commerce,  regulation  of, 
vested    in    Congress,    100. 

Interstate  Commerce  Act,  amend- 
ments to,  since  1910,  480,  512; 
chief  provisions  of,  451;  defects 
of,  455-456;  enacted,  451;  needed 
changes  in,  464;  operation  of  the, 
455;    results    accomplished    by,    464. 

Interstate  Commerce  Commission, 
powers  and  duties  of,  454;  powers 
of,  granted  by  the  Mann-Elkins  Act, 
471,  477;  powers  of,  granted  by  the 
Transportation  Act  of  1920,  512- 
533;  powers  of,  to  regulate  rates, 
459. 

Joint    Executive    Committee,    work    of, 

296. 
Joint    Traffic    Association,     305. 
Judicial       review,       development       of, 

536;    the    question    of,    474. 

Labor     disputes,     injunction     in,     548. 

Labor,    railway,    568. 

Lancaster   turnpike,    14. 

Land  grants,  first,  27,  411;  in  aid 
of  railroads,  amount  of,  414;  pur- 
poses of  government  in  making, 
417;  repeal  of  the,  415;  terms  of 
the,    412. 

Legal    department,    236. 

Locomotive,  classification  of,  57; 
early,  46;  electric,  advantages  of, 
79;  first  construction  of  in  the 
United  States,  23,  46;  first  run  on 
an  American  road,  46;  largest  ever 
constructed,  56;  later  types  of,  51; 
recent  improvements  in,  58;  trac- 
tive   power    of,    59;    terminal,    76. 

Long  and  short  haul  clause  of  Inter- 
state Commerce  Act,  451;  revision 
of,   478. 

Mail,  classification  of,  219;  govern- 
ment regulations  for  transporting, 
227;  service  of  the  railroads,  218- 
234;  services  performed  by  rail- 
roads in  transporting,  226;  statis- 
tics  of,   223. 

Mann-Elkins  Act,  chief  features  of, 
477. 

Massachusetts,  chartering  of  rail- 
roads in,  23;  Commission  of, 
1869,   powers   of,   427. 

Maximum  rate  case,  460. 

Middlesex   Canal,    16. 

Mileage,  growth  in  by  decades,  26; 
in  the  United  States  in  1918,  84; 
ratio    of    to    population,    95. 

Minnesota  Railroad  and  Warehouse 
Commission    case,    539. 


Minnesota   Rate  case,    101. 

Mississippi  Railroad  Commission 
cases,    538. 

Money    pool,    description    of,    288. 

Monopoly,  competition  and,  in  the 
railroad  service,  321-333;  illustra- 
tion of  a,  324;  what  is  meant  by, 
323. 

Morris   Canal,   18. 

Municipal  aid  to  railroad  building, 
418. 

Munn   v.    Illinois,    537. 

National  aid  to  railroad  construction, 
411;  policy  of  the  government  re- 
garding,   417. 

National    express    company,    204. 

Nebraska    rate    case,    539-540. 

Net    income,    135. 

New    England    railroad   group,    86,    90. 

New  York,  passenger  terminals  at, 
72. 

New  York  Central  system,  early 
consolidations  of,  to  form  the,  29; 
parent   company   of,   22. 

Newlands   Act,    485. 

Non-operating    income,    135. 

Northern  Securities  Company,  or- 
ganized,   119. 

Official  Classification,  territory  cov- 
ered  by,    150. 

Ohio    canals,    19. 

Operating,  department,  organization 
of,  243;  expenses,  134;  ratio,  138; 
revenue,    sources    of,    133. 

Operation,  federal  regulation  of,  484; 
governmental,    war   time,    489-511. 

Organization,  departmental  type,  240; 
divisional  type,  240;  Illinois  Cen- 
tral Railroad,  242;  of  railroad 
service,  235-249;  Pennsylvania 
Railroad,   244. 


Pacific   Coast,   early  railroad  to,   30. 

Pacific    Express    Company,    204. 

Pacific    railroads,    land   grants   to,   415. 

Panama    Canal    Act,    481. 

Panama    railroad,    407. 

Panic  of  1857,  and  1873,  effect  of, 
on    railroads,    28,    30,    278,   433. 

Parcel  Post,  express  service,  and  the, 
215;  insurance  for  packages  by, 
223;    rate    system    for,    220. 

Partnership,    defined,   98. 

Passenger  business,  percentage  of, 
147. 

Passenger    cars,    early,    61;    steel,    63. 

Passenger  fares.     See  Fares. 

Passenger  revenues  in  the  United 
States,    183-185. 

Passenger  service,  181-200;  general 
characteristics  of,  181;  use  of  elec- 
tricity for  motive  power,  199;  va- 
rieties of,  in  United  States,  188, 
!90. 


INDEX 


615 


Passenger  terminal,  essential  parts 
of,    69.  .  .       ... 

Passenger  traffic,  comparison  ot  witn 
foreign  countries,  186;  development 
of,  196;  volume  of,  in  United 
States,    185. 

Peik    v.    Chicago    and    Northwestern, 

433.  "         , 

Pennsylvania,  begins  system  ot  pub- 
lic works,  18;  early  construction  of 
roads  by,  14;  railroad  building  in 
1830-35,    23.  .      .      .  r 

Pennsylvania    Railroad,    beginning    ot, 
23;    chartered,    29;    organization    of, 
244-247. 
Per  diem,  175. 

Percentage  rate  system,   357. 
Philadelphia,     Wilmington     and     Balti- 
more  chartered,   23. 
Pittsburgh,   first  through  route  to,   18, 

28 

Pooling,    beginning   of,    290;    contracts 

illegal     at     common     law,     300;     in 

1887,    296;    present   phase   of,    under 

the     Transportation     Act     of     1920, 

521;     prohibited     by     the     Interstate 

Commerce  Act,  299. 

Pools,  railway,  and  traffic  associations, 

288-303. 
Postal    cars,    equipment    of,    226;    rate 

of   pay   for,   231. 
Postal   deficit,    cause  of,   232. 
President,   annual  report  of,  252. 
Private   cars,   classes   of,    178;    number 
of   in    use,    179;    objections   to,    178- 
179. 
Production,    defined,    3. 
Profit   and  loss  account,  256. 
Promoter,   the,    502._ 
Prussia,      early      railroad      policy      of, 
391;   fares,  war  time  increases,  400; 
nationalization    of    railroads    in,    re- 
sults    of,     398;     nationalization     of 
railroads    in,    394;    railroad    manage- 
ment  in,    395;    rate  making   in,   396. 
See  also   Germany. 
Public   aid  to    railroad   construction   in 

United    States,    407-421. 
Public     Service     Commissions     of    the 

States,   435. 
Pullman,      George     M.,     designer     of 

sleeping   car,    63. 
Pullman    Company,    (Debs)    strike    of 

1894,    551. 
Pullman     service,     business     arrange- 
ments,   with    the    railroad    company 
for,    193. 
Purchasing   department,   247, 


Quincy  tramway,   20. 


Rail,  development  of,  39;  first  Ameri- 
can, 40;  present  weight  of,  43; 
substitution  of  iron  for  wooden,  42. 


Railroad,    antecedents   of,    14;    govern- 
ment's    relation     to,     twofold,     367; 
mechanism    of,    38-82. 
Railroad     business,      not     a     complete 
monopoly,     332;     public    nature     of, 
upheld    by    Supreme    Court,    432. 
Railroad   Commissions,    first   and   their 
functions,     426;     powers     of,     436; 
two   types   of,   427. 
Railroad     company,     corporate     organ- 
ization,   240. 
Railroad    corporation    and    its    charter, 

97-107. 
Railroad      facilities,       supply      of      in 
United     States     and     foreign     coun- 
tries,   94,    95. 
Railroad  policy  of  the  state,  conditions 

which    determine,    405. 
Railroad      problem,      what     constitutes 

the,    104,    369,    427,   434,    430. 
Railroad    receiverships,    friendly,    560; 
objections     to     present     system     of, 
559;     purpose     of,     555;     suggested 
changes     in,     560,     562;      statistics, 
556. 
Railroad    regulation    by    Federal    gov- 
ernment,   448-466. 
Railroad    service,    cost    of    a,    particu- 
lar,   335;    organization,    of    the,    235- 
249. 
Railroad  system  of  the  United   States, 

the    present,    84-96. 
Railroad      valuation,      rule      of      rate 
making,     under     the    Transportation 
Act    of    1920,    525. 
Railroads'   War    Board,   498. 
Railway     and     Canal     Commission     of 

England,  powers  of,  381,  385. 
Railway  charges,  cost,  an  undesir- 
able and  impractical  basis  of,  337; 
cost  of  service  theory,  337;  Su- 
preme Court  upholds  state  legisla- 
tion regarding,  432;  two  cent  fare 
laws,  439;  value  of  commodity 
theory,  342;  value  of  service 
theory,  340;  what  the  traffic  will 
bear,  343. 
Railway     clearing     house,     176,     177; 

British,   176,  373. 
Railway   mail   pay,   231. 
Rate,     what     is    a    theoretically    just, 

347. 
Rate     making,     authority     granted     to 
the     Interstate     Commerce     Commis- 
sion,  518,   519,    524. 
Rate      making,      control      of      Federal 
courts     over,     542;     machinery     for, 
350;    problem    of,    352;    railroad    co- 
operation  in,   355. 
Rate   regulation    by   the   states,    537. 
Rate    systems    in    the    United    States, 

356. 
Rate    war,    in    1869,    278;    injunctions 

to   prevent,    545. 
Rates,     freight,     Advisory     Committee 
on,    388;    differential    to    North    At- 
lantic ports,  279;   express,   209,   210; 
importance    attached    to   distance    in 


616 


INDEX 


making,  339;  influence  of  compe- 
tition upon  local,  330;  need  of  a 
theoretical  basis  for,  335;  parcel 
post,  219,  220;  power  to  suspend 
in  Mann-Elkins  Act,  477;  prob- 
able effect  upon,  of  government 
ownership  in  the  United  States, 
569;  railway  competition  and 
agreements  to  maintain,  273-287; 
the  Ministry  of  Transport  and, 
388. 

Rates  and  fares,  chief  aim  of  traffic 
official  in  fixing,  344;  socialization 
of,    347;    theory    of,    334-348. 

Reading    Railroad    chartered.    23. 

Reagan  v.  Farmers  Loan  and  Trust 
Co.,    539. 

Real    estate    department,    247. 

Rebates,  injunction  to  prevent,  547; 
law   preventing,    356. 

Reciprocal    demurrage,    171. 

Regulation,  a  necessity,  369;  by 
Congress,  100;  by  the  American 
State  Governments,  422-447;  by 
the  courts,  102;  by  state  legisla- 
tures, 101;  causes  of,  573;  forms 
of,  370;  functions  of  judiciary  in, 
536;  origin  of  demand  for,  448; 
power  of  the  government  regarding, 
100;  problem  of,  in  the  West,  429; 
the  courts  and,  534-560;  where 
first  undertaken  in  the  West,  431. 
See  also  Federal,  State,  and  Gov- 
ernment   Regulation. 

Relief   departments,    247. 

Rent,    defined,    5. 

Revenue,   sources   of,    131. 

Right    of    eminent    domain,    367. 

Roadbed,   early  types  of,  41. 


Saratoga     Conference     of     1874,     286, 

295. 
Schuylkill    navigation,    17. 
Seaboard    Air    Line,    rate    controversy 

of,    1896,    544. 
Secretary's   department,    236. 
Securities,    comparison    of,    values    of, 

114. 
Shipping        papers,        express,        207; 

freight,    160. 
Shreveport   rate   case,    101,   443. 
Signals,    railway,    77.      See   also    Block 

signals. 
Sleeping    cars,    origin    of,    63. 
Smyth     v.    Ames,     540. 
Social    Circle   case,   477. 
Southern         Classification,         territory 

covered   by,    150. 
Southern    Express    Company,    204. 
Southern       Railway      and       Steamship 

Association,    292. 
Southern      railway     rate     controversy, 

544. 
Southern    rate    system,    357. 
Southern     territory,     railroad     systems 

in,    87. 


State  aid  to  railroads,  amount  of, 
409;  forms  of,  409;  results  of, 
410. 

State  legislatures,  powers  of,  to  regu- 
late  railroads,    101. 

State  regulation  before  1870,  423; 
complex  problems  of,  440;  defect 
in,  265;  lack  of  uniformity  in, 
442;  objections  to,  441;  preceded 
that    by     Federal    Government,    423. 

State  regulation,  recent  methods  of, 
434. 

Statistics  of  railroads,  262-268;  five 
leading  sources  of,  262;  publica- 
tion   of,   263-264. 

Stephenson,  inventor  of  the  locomo- 
tive,   21. 

Stock,  classes  of,  110;  how  affected 
by    speculation,    142-143. 

Stockholders,  number  of,  in  two 
representative    railroads,     105. 

Stock-watering,  effect  of,  120;  evils 
of,  116-119;  methods  of,  118;  mo- 
tives of,    113;    purpose   of,    139. 

Strikes,  Federal  law  concerning 
railroad,    485. 


Tariff  policy  of  American  and  for- 
eign   railroads,    363. 

Technics   of   transportation,    2. 

Telegraph,  service  of,  to  railroading, 
77. 

Terminals,  importance  of,  68;  use  of 
electric    power    in,    68. 

Tickets,    types    of,    195. 

Toll    roads,    beginning    of,    14. 

Track,    early    construction    of,    38. 

Track    storage    charges,    170. 

Traffic  associations,  a  violation  of 
the  antitrust  law  of  1890,  306; 
and  pools,  288-303;  existing,  315; 
functions  of,  316;  four  classes  of, 
315;  present  status  of,  313-314; 
reorganization    of,    after    1897,    301. 

Traffic  department,  organization  of, 
241. 

Tramway  companies,  chartering  of, 
20. 

Trans-Missouri  Freight  Association, 
311,    312,     535. 

Transcontinental  railroads,  Federal 
aid  to,  30;  first,  30;  land  grants  to, 
411-412^ 

Transcontinental    rate    system,    359. 

Transcontinental  territory,  railroad 
systems    in,    88,    91. 

Transportation  Act  of  1920,  512-533; 
consolidation,  provisions  as  to, 
445;  consolidation  under,  519; 
Esch  car  service  act  amplified  un- 
der, 521;  government  guarantee 
under,  515;  limitation  of  securi- 
ties issue  in  consolidation,  under, 
129;  national  regulation  under, 
101;    passed,    35;    protection    against 


INDEX 


617 


rate  wars.  547,  railroad  boards  of 
labor  adjustment,  516;  Railroad 
Labor  Hoard  created,  516;  rule  of 
rate  making,  S5,  517;  State  control 
over    rates,    under,    443. 

Transportation,  a  service  of  a  public 
nature,  8,  368;  and  political  science, 
9;  and  the  production  and  use  of 
wealth,  4;  definition  and  scope  of, 
1-9;  department,  239;  economics  of, 
3;  relation  of,  to  the  distribution 
of  wealth,  5;  relation  of  the  gov- 
ernment to,  7,  9;  service,  public 
nature  and  unity  of,  273;  technics 
-'. 

Treasury  department,   237. 

Trunk    line    pool,    296. 

Trunk    line    rate    system,    356. 

Trunk  lines,  designation  of,  86;  ef- 
forts of  to  regulate  competition, 
304. 

Turnpikes,     14. 

Uniform  accounting,  prescribed  in 
Hepburn    amendment,    259. 

Union    line,    functions   of,    174,    177. 

Union-Pacific  Southern-Pacific  system, 
88. 

Unit    billing,    168. 

United    States    Express   Company,   204. 

United  Kingdom,  capitalization  per 
mile    of    railroads    in,    112;    freight 


rates     in,     387;     railroads     of,     re- 
ceived   no    state     aid,     371;     regula- 
tion   of    railroads    in,    367-389. 
Utilities    commissions,    434-435. 


Valuation     of 

123. 
Valuation    of    railroads, 

Congress,   35. 


non-physical     property, 
authorized    by 


passenger  sta- 
plans  for  a 
freight,     165, 


Wabash    decision,    433. 

Wages,   defined,    6. 

Washington,     D,     C, 
tion    at,    72. 

Washington,     President, 
national     highway,     16. 

Waybill,     express,     207; 
166. 

Wells,    Fargo  &    Co.,   204. 

Western     Classification,    territory 
ered    by,    150. 

Western    Express   Co.,   204. 

Western    rate    system,    358. 

Westinghouse,     George,     inventor 
the  air   brake,    64. 

Wilson,    President,    assumption    of 
control     of     the     railroads     of 
United      States,      proclamation 
504;      proclamation     for     the     relin- 
quishment    of     the     control     of     the 
express     business,     205. 

Windom,     report,    449. 


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